The Australian Taxation Office (ATO) has announced a new data-matching program targeting taxpayers that earn income from online rentals and sharing platforms. And it’s not just home rental sites like AirBNB and Stayz that the ATO have their sights on – those earning extra cash through car-sharing services like Car Next Door or DriveMyCar are also on the hit list!
Utilising information from online sharing sites matched to information from financial institutions, the ATO is targeting more than 190,000 individuals to make sure they haven’t failed to declare or under-declared rental income, or over-claimed deductions. In effect, whatever data your sharing platform has will need to match what you have declared in your tax return. And yes, the ATO can potentially check what is coming in and out of your bank account!
The ATO states that there is no such thing as a ‘rental hobby’… so even a one-off rental needs to be declared.
But it’s not just the income the ATO are concerned about; deductions claimed are also in the spotlight. The ATO is concerned that some landlords are not only over-claiming (for example, claiming deductions for the whole house when only one room is rented out), but claiming deductions when the accommodation is not genuinely available for rent.
The records utilised by the ATO will be used to identify taxpayers not meeting their registration, reporting, lodgement or payment obligations when renting out property on a short-term basis, complementing existing long-term rental information the ATO receives from State and Territory Bond Boards.
If you do offer short-term rental accommodation, here are the tax ‘ground rules’:
- Keep records (particularly if you are claiming deductions);
- Any income from rentals need to be declared – even 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;
- The activity might impact your ability to access the main residence CGT exemption on the sale of the property.
With around 2.1 million individuals reporting rental income of $42 billion in 2016, and with figures rising each year, you can see why the ATO is keen to lay down the law.
Car-sharing services like Car Next Door and DriveMyCar work by making private cars publicly available in a similar way to other car hire services – it’s like AirBNB for cars. Combined, DriveMyCar and Car Next Door report that over $13 million has been paid out to car owners renting through the service.
The ATO has taken an interest in the income earned through car-sharing services, as it seems some people are counting the extra income as a hobby – and income from a hobby is not assessable, nor does it need to be included on your income tax return. But the ATO is keen to point out that income from sharing services is not a hobby and does need to be declared. The upside is that if you earn income from these activities you might be entitled to claim deductions for things like platform membership fees, availability fees, cleaning fees and car running expenses.
If you are targeted by the ATO, you’ll have 28 days to respond before any compliance action is taken. If you’re concerned you might be a target in the ATO’s rental blitz, consider Audit Insurance to cover the costs of responding to an ATO investigation, and make sure your paperwork is in place. The ATO penalty can be as high as 75% of the tax shortfall, so make sure you’re protected!
If you think you may be audited, or would like some advice about your own situation, just call us on 9887 8751 or send us an email and we’ll be happy to help.