If you’re a property investor, you can enjoy several advantages, and one significant benefit is the ability to avail tax deductions. However, there has been a growing concern within the tax department regarding individuals who either fail to report their income derived from investment properties or exaggerate their expenses while making claims.
To address this issue, the tax department has recently implemented the residential investment property loan data-matching program (RIPL). This program enables the Australian Taxation Office (ATO) to access and analyze individuals’ financial information, specifically related to their residential investment properties.
With the approaching tax season, it is crucial to be mindful of the implications of this program. It emphasises the importance of accurately reporting your investment property income and expenses, ensuring compliance with tax regulations and avoiding potential issues with the ATO.
WHAT IS THE RESIDENTIAL INVESTMENT PROPERTY LOAN DATA-MATCHING PROGRAM?
The ATO has introduced the residential investment property loan data-matching program (RIPL) with the objective of safeguarding public revenue and upholding the integrity of the tax system. Its primary aim is to ensure compliance with income declaration requirements and encourage property investors to accurately report their rental property loan interest and borrowing expense deductions during tax season.
The RIPL has been implemented to address the issue of incorrect reporting of rental property income and expenses, which was found to contribute over $1 billion to Australia’s $9 billion tax gap. This program gathers data related to rental property loans, repayments, interest charges, and borrowing expenses. The collected information will be utilised to verify that investors are submitting their tax returns and correctly reporting details such as interest, borrowing expense deductions, and capital gains.
HOW DOES RIPL WORK?
The ATO shares that it uses identity-matching techniques to identify taxpayers after obtaining data from third parties including Australia’s major banks.
It then applies an identity-matching process to match financial transactions with what has been reported in investors’ tax returns.
Banks are obliged to share information with the ATO under existing tax laws. As well as personal details, the ATO is able to access information about your loan, account transactions and investment property.
In other words, the tax department doesn’t have to take your word for it when it comes to reviewing the income and expenses related to your investment property because it has the power to cross-reference your claims with your account information. If the ATO feels as though your tax return is incorrect, they will be in touch. You will have up to 28 days to verify the accuracy of the information and respond before the ATO takes administrative action.
GET YOUR TAX INFORMATION UP TO DATE
As a property investor, you have the right to claim expenses, but it is essential to provide evidence supporting your declarations regarding expenditures and property-generated income. If you have a reliable property manager and a competent tax accountant, you should be able to easily submit the necessary details as you would have maintained clear records throughout the year. Your tax accountant will also guide you on eligible claims, as well as what needs to be declared as income or capital gains.
In the case of self-managing your property, it is advisable to use a separate bank account for all management-related transactions and to keep updated records of your loan. This practice will facilitate sharing relevant information with the tax office.
Additionally, don’t forget to have a depreciation schedule prepared to ensure a comprehensive understanding of the deductions you are eligible for.
Regarding earnings and expenses from previous financial years related to your investment property, it is not too late to make amendments. Consult your accountant to review previous tax returns and ensure they align accurately with the information in your bank accounts.
Need help with your tax return as a property investor? Speak to Moore Lewis & Partners today!
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.
