190,000 Taxpayers 'Examined' in ATO Online Rental Blitz
Looking to make some extra income from your property via short-term rentals? If so, you should be aware that the ATO has announced its new data-matching program targeting taxpayers who offer their spare space on platforms such as AirBNB and Stayz.
Whether you're already renting out your spare space or considering renting your property out as a short-term rental, be aware that the Australian Tax Office is targeting 190,000 individuals to ensure they have not failed to declare (or under-declare) income or over-claim deductions.
Around 2.1 million individuals reported rental income of $42 billion in 2016 with the figure rising each year.
Whichever platform you choose, the data it holds on your earnings from your property must match what you declare on your tax return – and yes, the ATO can potentially check what is coming into and going out of your bank account. Even if it is for a one-off rental, the ATO has stated that there is no such thing as a 'rental hobby', so even a one-off rental must be declared.
However, it's not just the income the ATO is focusing in; deductions claimed by tax payers are also in the spotlight. The ATO has concerns that some short-term landlords are both overclaiming their deductions, e.g. claiming for the whole property even when it's only one room being rented out and claiming deductions when the accommodation is not genuinely available for rent.
Understand the tax 'ground rules'
The ATO has access to and utilises the data from a range of sources, which enables it to identify taxpayers who are not meeting their registration, reporting, lodgement or payment obligations when renting out property on a short-term basis. These complement existing long-term rental information that the ATO receives from state and territory Bond Boards.
So what are the ground rules for staying on the right side of the ATO? Here's our top 6:
- Keep records (particularly if you are claiming deductions)
- Any income from rentals need to be declared – even if it is a one-off rental
- If you rent the property for income producing purposes, you can claim a deduction for the costs of earning that income
- Any deduction claimed needs to be in proportion to the length of time the accommodation was rented, and in proportion to what was rented. That is, if you rent one room, you can only claim deductions for the expenses incurred relating to that portion of the accommodation for the time it was available.
- Deductions are limited to the income earned where the accommodation was provided below-market rates, for example to family and friends.
- This activity might impact on your ability to access the main residence CGT exemption on the sale of the property.
What to do if You're Contacted by the ATO
If you are targeted by the ATO, contact us immediately. You have 28 days to respond to an ATO inquiry seeking clarification before any compliance action is taken. The ATO penalty can be as high as 75% of the tax shortfall.
If you are concerned you might be a target, consider Tax Audit Insurance to cover the costs of responding to an ATO investigation and make sure your paperwork is in place.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.