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If you’re a property investor, one of the main benefits is being able to claim tax deductions.
However, recently the tax department has become concerned about individuals either failing to declare their income related to their investment property or overclaiming on expenses.
Because of this, it has introduced the residential investment property loan data-matching program (RIPL). This allows the ATO to access people’s financial information.
It’s coming up to tax time, so it’s worth being aware of what this involves.
What is the residential investment property loan data-matching program?
As shared by the ATO, the goal of this program is to protect public revenue and maintain confidence in the integrity of the tax system. It is aimed at promoting compliance with income declaration requirements and encouraging investors to correctly report their rental property loan interest and borrowing expense deductions at tax time.
In other words, the RIPL has been created to make sure property investors are doing the right thing when it comes to the related expenses that are claimed and income declared. The program was introduced after it was found that incorrect reporting of rental property income and expenses were contributing more than $1 billion of Australia’s $9 billion tax gap.
Data gathered from the RIPL will include information about rental property loans and repayments, interest charged and borrowing expenses. These details will be used to confirm investors are lodging their tax returns and accurately reporting things like interest, borrowing expense deductions and capital gains.
How RIPL works
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
You have every right to claim expenses as a property investor, but you have to be able to prove your declarations about what you have spent and how much income the property has generated.
If you have a good property manager and a good tax accountant, you will be able to submit the relevant details without too much trouble because you will have kept clear records throughout the year. Your tax accountant will also let you know what you can claim and what you need to declare as income or capital gains.
If you self-manage your property, try to use a separate bank account for transactions related to its management as well as keeping aside up to date records about your loan. This will make it easier to share details with the tax office.
Don’t forget to have a depreciation schedule prepared so you can be 100 per cent clear about the deductions you are eligible for.
In relation to your investment property earnings and expenses from previous financial years, it’s not too late to make amendments. Speak to your accountant to review previous tax returns and ensure they are in line with the information in your bank accounts.
Need help with your tax return as a property investor? Speak to Crest Accountants 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.
