Rental property data matching

Rental property data matching – now more than ever owners need to get it right.

The Australian Taxation Office (ATO) is warning rental property owners that their tax returns continue to be a key focus. Audit activity in this area has found that 90% of rental property owners are making errors in their tax returns.

The ATO is making use of cutting-edge artificial intelligence and data-matching technology to uncover undeclared income and incorrect deductions.

Common errors include:

1. Failure to declare

The ATO accesses property management data, rental bond information and reporting from platforms offering short-term accommodation services. The goal is to match this data against tax returns and flag inconsistencies.

2. Misclassification of claims

Both renovations/improvements and repairs and maintenance costs can generate tax-deductible expenses on an investment property. However, the amount of the tax-deductible expenses that you can claim for each of these types of costs differs significantly. Ultimately the classification is a question of fact, and sufficient information needs to be provided so that an accurate determination can be made.

3. Incorrect apportionment

You can only claim rental property deductions when the property is generating income or is genuinely available for rent.

If you are not charging a commercial rate of rent to your tenants your tax-deductible expenses may be limited to the amount of rent charged.

Only the interest on your investment property loan can be claimed as a tax deduction, not any principal repayments. If you borrow against the equity you have in your investment property and use those funds for private purposes, then the interest on those funds can’t be claimed as a tax deduction either. The ATO collects detailed data from financial institutions including loan balances, property addresses, and transaction histories, covering the 2021–2026 financial years.

4. Unsubstantiated claims

To claim a deduction in relation to a rental property, it is important to have documents to justify the deductions claimed. Based on our experience with ATO reviews, the following information is requested:

Category	Description
Rental Income & Leases	Rental income records, lease agreements with tenants.
Bank Statements	Bank statements reflecting rental income and expense payments.
Property Management	Reports from property management companies detailing income and expenses.
Receipts	Repairs, maintenance, property management fees, advertising, legal and accounting fees, land tax, council rates.
Depreciating Assets	Receipts for capital assets exceeding $300, depreciation schedules and quantity surveyor reports.
Loan Documents	Mortgage agreements, loan statements, refinancing documents.

 

Capital Gains Tax records.

It is important to keep records to substantiate the capital gains tax treatment for your rental property. This includes acquisition documents such as the purchase contract, settlement statement, stamp duty and legal costs, and disposal costs such as the sale contract, settlement statement, agent’s commission and legal costs. You should also maintain records of the use of the property, particularly if it was used as a main residence.  Unclaimed costs of ownership, the written down value of depreciable assets and capital works claimed during the period of ownership are required to correctly calculate the capital gain for a rental property.

This article contains general information that should not be considered as advice. A small change in a factual situation can significantly alter the tax result arising from a transaction. This firm accepts no responsibility or any form of liability from reliance upon or use of its contents without further consultation with us.