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Taxpayers warned to shape up as ATO boosts data-matching power
With the backing of new legislation, the Australian Taxation Office (ATO) has expanded its data-matching capability to ensure taxpayers don’t leave out income or inflate deductions this tax season. Advisers are warning taxpayers to be particularly careful with interest rate deductions.
New data is rolling into the ATO from property managers, landlord insurance providers, financial institutions and sharing economy providers, as well as income protection policy information, which it will use to more rigorously check taxpayers’ numbers in 2022-23 tax returns, the agency said.
As of July 1, the ATO now requires more electronic distribution platforms to report payment information. This will come into effect in two phases:
- Electronic distribution platforms that provide taxi services, ride-sourcing and short-term accommodation must report income data from this July 1.
- All other electronic distribution platforms must report from July 1, 2024.
The changes are part of what the ATO calls the Sharing Economy Reporting Regime (SERR), which requires operators of electronic distribution platforms (EDPs) that transact in Australia to report more information to the ATO about EDP payments.
ATO assistant commissioner Tim Loh (pictured) said that while the ATO has received data from several digital platforms in the past, these legislative changes mean more platforms will be required to regularly report data to the ATO. That information will be matched against what individuals report in tax returns or activity statements.
“These new rules will give the ATO clear visibility of people who are earning income using these platforms,” Loh said. “Our sophisticated data-matching programs provide us with all the clues we need to track down taxpayers with incorrect information in their tax return.”
Investment property owners a target
A particular focus for the ATO for 2022-23 tax returns will be people who own investment properties. The ATO’s review of income tax returns showed nine in 10 rental property owners are getting their return numbers wrong. An expanded collection of investment loan data and landlord insurance policy information means the ATO will now have greater visibility over deductions.
About 80 per cent of taxpayers with rental income claimed an interest cost deduction, and this is where the ATO is most often seeing mistakes. “For example, you can’t refinance an investment property to buy personal items, like a holiday to Europe or a Tesla, then continue to claim the interest expenses as a tax deduction,” Loh said.
Bruce Brammall of Bruce Brammall Financial is also warning taxpayers to be careful with interest expense this year following the ATO changes.
“It sounds like property investors are their main focus this year,” he said. “I don’t understand how nine out of 10 can get it wrong when eight or nine out of 10 are using accountants. But those areas seem to be the focus: interest and other deductions.”
According to chartered accountant Wen Wen, founder of W Wen & Co, the ATO will be especially focussed on ensuring rental property correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was refinanced with some private purpose). The ATO will also be checking for capital gains on the sale of property.
“Be mindful that the ATO has extensive data-matching capabilities and, as such, will likely be able to detect the sale of most CGT assets,” she says.
With the new landlord insurance data-matching protocol, the ATO is also reminding taxpayers that any insurance payouts received in relation to an investment property must be reported as income. “This new data provides us with crucial intelligence to paint a picture of what’s true and accurate in tax returns.”
According to ATO data, 87 per cent of taxpayers who own rental properties use a registered tax agent to lodge their return. “Taxpayers are responsible for what they include in their tax return, even when using an agent.”
Work-related expenses scrutinised
The ATO is also warning taxpayers to think twice before ‘copying and pasting’ work-related claims from last year’s tax return, as there are some key changes to look out for this tax time.
“When you’re getting ready to lodge, consider the records you have to support your claims this year – don’t just copy and paste your claims from last year; this will raise a red flag for us,” Loh said.
Around 8.6 million Australians claimed nearly $21.6 billion in work-related expenses in their 2022 tax returns. Wen says that since March 1, 2023, a contemporaneous record of all the hours worked from home is required.
“To claim your working-from-home expenses as a deduction, you can use the actual cost method, or the revised fixed-rate method,” she said. “Under the actual cost method, you can work out your work-related expenses using records for the entire year or over a four-week period that represents your work use – for example, using a diary or itemised bill.”
A new income protection data-matching protocol also means the ATO will know premiums paid for income protection insurance policies as well as payouts received. “You can generally claim a deduction for income protection insurance you buy but remember you can’t claim the deduction if the insurance policy is paid by your super fund,” Loh said.
