They say one bad egg can spoil the bunch – and that’s certainly the case for investors with the Australian Taxation Office (ATO) set to launch a rigorous examination of investor loans this year as part of increased efforts to combat fraudulent claims.

The new ATO residential property loans program will target a large percentage fo the nation’s 2.2 million property investors, aiming to target incorrect deductions and undeclared income.

ATO assistant commissioner Tim Loh said that data will be collected on approximately 1.7 million investors’ loans, cross checking that information with information already obtained from banks and property managers. In addition to this, the ATO will soon collect landlord insurance data as well.

How often are errors or deliberate manipulations occurring?

 A recent analysis revealed that 9 out of 10 property investors’ tax returns were incorrect.

Whilst the majority of errors on tax returns are due to simple mistakes or lack of reasonable care by property investors, there are many deliberate attempts to manipulate tax debts or inflate refunds and this is what the new program will target.

Common mistakes made by property investors included misallocating loan interest costs when refinancing for personal purposes, underreporting or failing to declare rental income, not apportioning expenses for private use and claiming the full loan amount instead of only the interest.

How will the ATO carry out this investigation?

The ATO will initially collect investment property loan data from at least 16 banks, including the big four. This information may include account details, loan balances, transactions, loan types and terms as well as unique account IDs. This information will then be used to cross-match against the data the ATO already has to ensure that no mistakes or deliberate manipulations are taking place.

What should you do as an investor?

Good record keeping is essential for investors (as it always has been). With the new ATO program providing greater information for data matching, it’s important that property owners keep records to be able to explain any errors or differences that may be found.

Tim Loh has advised investors to retain all records related to a property’s expenses, income, purchases and sales for a minimum of five years after the property is sold.

The ATO also has a number of products to help taxpayers and registered agents get returns right. The Tax Time Toolkit for Investors is a handy tool for investors as it includes a dedicated guide and a number of fact sheets for rental property owners to ensure you have the right information.

Wondering if your loan measures up?

We’re here to help. With decades of experience helping property investors do the right thing for themselves and the tax department, we’re here to answer any questions or find the right loans for you needs. Get in touch with us today to get started.