Early in 2025, the Australian Taxation Office (ATO) announced a major compliance crackdown on property investors, launching an extensive data-matching program designed to identify tax non-compliance.

Over the next three years, the ATO will collect rental bond data from more than 2.2 million landlords, tenants, and property managers twice annually. The program specifically targets underreported rental income, unlodged tax returns, and inaccurate deduction claims.

With this heightened scrutiny, landlords who fail to maintain accurate records or meet their tax obligations could face audits and financial penalties. However, landlords who take proactive steps to ensure their financial records are accurate and up-to-date can avoid unnecessary stress and financial losses.

Understanding the ATO’s compliance focus

The ATO’s latest compliance initiative builds on its ongoing efforts to ensure landlords are meeting their tax obligations. With access to rental bond data, tax officials can now cross-check information reported in tax returns against actual rental transactions. This initiative helps the ATO identify cases where rental income has been underreported, properties have not been declared, or deductions have been claimed incorrectly.

This increased oversight means landlords must take extra care when lodging their returns. Even minor errors like failing to report rental income from a short-term lease or mistakenly claiming a repair as a capital improvement can lead to an audit and result in penalties.

Common mistakes that trigger an ATO audit

Property investors must be aware of common tax errors that could raise red flags with the ATO. These include:

• Overclaiming interest deductions 

Deducting interest on personal loans rather than those directly related to the investment property.

• Incorrectly apportioning deductions

Claiming 100% of deductions for a property that is only partially rented out.

• Failing to declare rental incentives or insurance payouts

Any rental incentives, including rent reductions or insurance payouts for lost rental income, must be reported.

• Claiming ineligible travel expenses

Travel deductions for rental property inspections are no longer allowed for most investors.

• Misclassifying expenses

Repairs are deductible immediately, but capital improvements must be depreciated over time. Incorrect classification can result in compliance issues.

The hidden risk for landlords

One of the most overlooked areas of tax compliance among property investors is depreciation. According to BMT Tax Depreciation, a leading provider of depreciation schedules, 66% of investment properties have undergone renovations or upgrades. Yet, many landlords fail to claim their full depreciation entitlements, leaving thousands of dollars in unclaimed deductions each year.

Depreciation is one of the most valuable tax deductions available to property investors, as it allows them to offset the cost of wear and tear on their investment properties. However, calculating depreciation correctly requires specialised knowledge of tax legislation and property structures. Many landlords either miss out on deductions for renovations completed by previous owners or fail to properly document upgrades they have made themselves.

To claim depreciation accurately and maximise tax savings, landlords must engage a registered quantity surveyor who can prepare a comprehensive depreciation schedule that aligns with ATO guidelines. This document serves as crucial evidence in the event of an audit, substantiating depreciation claims and reducing the risk of errors in tax submissions.

Key steps to remain audit-proof

With the ATO’s expanded data-matching program actively monitoring rental property compliance, landlords need to take proactive measures to protect themselves from potential audits and penalties. Here are three key steps every property investor should follow:

• Report all rental income accurately

Ensure that all rental income is declared, including income from short-term rentals like Airbnb. Be aware of special conditions that apply to non-resident landlords and ensure compliance with relevant tax legislation.

• Claim all eligible deductions

Keep detailed records, understand that repairs are immediately deductible while capital improvements are depreciated over time, and claim depreciation for both the building and eligible assets. Maintain clear records of all expenses related to the investment property.

• Engage a registered quantity surveyor for a depreciation schedule

Only specialists, like quantity surveyors, are recognised by the ATO for providing compliant depreciation schedules. A detailed schedule ensures landlords do not miss out on significant tax deductions and provides documented proof in case of an audit.

Landlords who fail to maintain accurate records or claim deductions correctly risk not only financial penalties but also the stress and time associated with an ATO audit. The latest compliance crackdown serves as a timely reminder for investors to review their financial reporting processes and take action to protect themselves.

By implementing strong record-keeping practices, accurately reporting rental income, and securing a professionally prepared depreciation schedule, landlords can ensure they remain audit-proof while maximising the benefits of property investment.

For more information on depreciation deductions available for your investment property, contact BMT Tax Depreciation at 1300 728 726 or request a quote.

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