ATO scrutiny of property investors stirring fear, uncertainty
Barely a quarter of property investors feel in control at tax time, as the ATO ramps up its scrutiny on property investors throughout the end of financial year tax season.
Property investors are feeling the heat from the Australian Taxation Office (ATO), with seven out of ten saying there was more intense scrutiny on them and six out of ten saying recent legislative changes were difficult to navigate.
The ATO is implementing stringent measures that are set to have significant implications for property investors across the country.
Their decision to ramp up their efforts comes in response to a surge in tax return inaccuracies reported in recent years, with property investors found to be one of the major contributors to the problem.
Unintentional mistakes, misinterpretations, and deliberate omissions have resulted in a substantial loss of revenue for the government, leading to the urgent need for stricter enforcement.
Starting from the financial year 2023-2024, the ATO will be deploying advanced data analytics and artificial intelligence tools to conduct comprehensive cross-referencing of taxpayers’ reported income and property-related deductions. This initiative will enable the tax authority to detect anomalies, irregularities and discrepancies in a more efficient and timely manner.
Property investors are being pushed to make financial decisions they may not have considered just 12 months ago.
- Nicole Kelly, Founder, TaxTank
Australasian Taxation Services’ Director, Jason Lawrance, defended the ATO’s new approach, saying it sends a clear message to all taxpayers about the importance of accuracy and integrity in their financial dealings.
“As the ATO’s intensified crackdown takes effect, property investors are advised to take extra caution when preparing their tax returns.
“Seeking guidance from qualified tax professionals and diligently documenting all relevant income and deductions will be crucial in avoiding potential pitfalls and ensuring compliance with tax laws.”
He acknowledged concerns raised by critics who argue the ATO must ensure that its artificial intelligence and data analytics tools are error-free and capable of distinguishing genuine mistakes from deliberate tax evasion attempts.
“Ultimately though, the ATO is less concerned with intent than it is with accuracy, so the onus is on property investors to get it right, even if it is a complicated process, to avoid facing the ATO’s increased scrutiny as a result of the crackdown,” Mr Lawrance said.
Taxing time for property investors
Recent research conducted by TaxTank at the end of financial year tax season found that only around one in four property investors felt comfortable with the tax return process.
It found that most property investors (71 per cent) are concerned about missing out on possible deductions, and more than half (57 per cent) are concerned about making a mistake. Recent legislative changes were difficult to navigate according to 59 per cent of respondents.
A mere 27 per cent of property investors feel ‘in control’ at tax time.
Nicole Kelly, Founder of TaxTank, said the increased power given to the ATO and their intensified scrutiny of property investors is creating significant concern and stress.
“For millions of taxpayers across Australia, they are merely trying to navigate the tax system in a way that delivers compliant, legal, fair, and accurate outcomes for both sides, however, with changing regulation and the looming threats made by the ATO, many investors end up putting their taxes in the ‘too hard basket’ before they have even started the process.
“This scrutiny also increases the pressure on agents, which further exacerbates the cost of compliance on individuals.”
In April it was announced that banks will be compelled to hand over the transaction data of 1.7 million property investors to the ATO as part of a major crackdown on landlords evading their tax obligations.
The ATO has also warned the public of schemes aiming to tempt SMSF trustees into illegal early release arrangements or inappropriately channelling money or assets into an SMSF to pay less tax.
Interest rates putting pressure on investors
The TaxTank research also revealed that 78 per cent of property investors have been impacted by interest rate rises, with more than half (54 per cent) needing to take action to manage repayments. This includes 32 per cent increasing the rent of their property, 15 per cent refinancing, 15 per cent pursuing a higher income, and 7 per cent selling their property.
Uncertainty about the future of the property market and interest rates is also impacting property investors.
Most property investors (78 per cent) believe interest rates will continue to rise and more than one in five (22 per cent) expect them to continue to rise for the foreseeable future. Almost half (45 per cent) feel uncertain about the future due to higher interest rates.
“Property investors are navigating a fast-moving and constantly changing property landscape at the moment and are being pushed to make financial decisions they may not have considered just 12 months ago,” Ms Kelly said.
“This is putting many taxpayers in a difficult situation, where they need to simultaneously weigh up the pros and cons of managing a property with the realities of needing to pay larger monthly bills amid an uncertain economic backdrop.”