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Landlords dodging $1 billion in tax payments: ‘Startling’

It may not be just the mega-rich and giant companies finding tax loopholes.

Australian currency and the ATO logo.
The ATO has revealed how landlords try to avoid paying the right amount of tax. (Source: Getty/ATO)

The Aussies skirting the tax rules may be closer to you than you think, with a shocking review revealing how many landlords attempt to bend the rules.

According to Australian Taxation Office (ATO) second commissioner Jeremy Hirschhorn, nine in 10 sampled tax returns reporting net rental income required adjustment last year.

“Currently, rental income and deductions contributed over $1 billion to the net tax gap. In the 2020/21 tax return - as of 30 June, 2022 - over 2 million rental property owners declared over $45 billion in income and about $43 billion in expenses,” Hirschhorn said.

“The Random Enquiry Program that helped determine this estimate showed that nine out of 10 returns reporting net rental income required adjustment. This is startling and clearly something we need to address.”

How are landlords skirting tax requirements?

The ATO found the most common behaviour to avoid paying tax was:

  • Not declaring rental income

  • Not declaring the capital gain on the sale of the rental property

  • Claiming the main-residence exemption under the capital gains tax for the profit on sale of what is really a rental property

  • Claiming interest deductions when a property is not truly available for rental, being a holiday home

  • Wrongly claiming capital expenditure as an immediate deduction

  • Assigning all rental income deductions to one spouse when the loss-making property is co-owned

  • Claiming deductions for the full cost of travel to a property when the travel was partly for other purposes, such as holidays

What is the tax gap?

The tax gap is essentially the amount of tax the ATO believes it should be receiving, based on the current laws, and how much it actually gets.

The ATO estimated the current tax gap in Australia was about 7 per cent - meaning it received 93 per cent of the tax it calculated. And, while that is a positive result, it still equates to a lot of money.

“Even with 93 per cent performance, a 7 per cent gap is still about $33 billion, which can’t be ignored,” Hirschhorn said.

“And it’s when we start examining tax performance, according to our markets, you can start to see where some of the challenges lie and where we really need to focus our efforts.”

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