Mark Chapman* reports that this year the Australian Taxation Office will be targeting its resources on areas where taxpayers are prone to making mistakes.
Every tax time, the Australian Taxation Office (ATO) focuses on certain hotspots where taxpayers are prone — either accidentally or deliberately — to make errors.
These are the areas it will concentrate its audit firepower on and for those who have made claims in areas which the ATO will be targeting, they can be a wake-up call both to ensure that you get it right this year and that you go back and check that you did it right last year.
So, what is on the ATO’s list this year?
Well, essentially, they’re looking at two main areas: work-related expenses and claims made by investment property owners.
The ATO recently said there was an $8.7 billion shortfall between the tax individuals are expected to pay and the tax they actually are paying.
It believes work-related expenses claims are the biggest element in that “tax gap” and have signalled that they’ll be looking closely at these deductions this year.
In particular, they’ll be looking closely at:
- Claims for work-related clothing, dry cleaning and laundry expenses (for instance, the ATO has flagged that it will be checking taxpayers who take advantage of the exemption from keeping receipts for people who spend less than $150 on laundry expenses).
- Deductions for home office use, including claiming for “occupation” costs like rent, rates and mortgage interest, which are not allowable unless you’re actually running a business from home.
- Overtime meal claims.
- Union fees and subscriptions.
- Mobile phone and internet costs, with a particular focus on people who are claiming the whole (or a substantial part) of the bill for their personal mobile.
- Motor vehicle claims where taxpayers take advantage of the 68 cent per kilometre flat rate available for journeys up to 5,000 km.
- Incorrectly claiming deductions under the rule that allows taxpayers who have incurred work-related expenses of $300 or less in total to make a claim without receipts.
All these are areas where we know taxpayers often make mistakes, often not helped by misleading or vague advice from the ATO about how the law actually works.
Before making any claim, you should be confident that you understand what you can and can’t claim and that you have the necessary proof that you actually incurred the expenditure and that it was work or business related.
Property spotlight
The other main focus this year is on people who make deduction claims in relation to investment properties and holiday homes.
Over 1.8 million people own an investment property, according to ATO figures.
The ATO believes errors in rental property claims are the second biggest component in the $8.7 billion tax gap and announced that in a series of audits, they found errors in 90 per cent of returns reviewed.
The ATO has announced it will be paying close attention to excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property.
They will also be looking at the incorrect apportionment of rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than jointly.
They will be looking at holiday homes that are not genuinely available for rent.
Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent.
Periods of personal use can’t be claimed.
They will be keeping a close eye on incorrect claims for newly purchased rental properties.
The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately.
These costs are deductible instead over a number of years.
Expect to see the ATO checking such claims and pushing back against claims which don’t stack up.
Don’t forget, the ATO has access to numerous sources of third-party data, including access to popular holiday rental listing sites such as Stayz and Airbnb, so it is relatively easy for them to establish whether a claim that a property was “available for rent” is correct.
The golden rule is: if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.
Other hotspots
Cryptocurrency: The ATO will also be taking a closer look at the booming market in cryptocurrencies like Bitcoin.
Increasing numbers of taxpayers are jumping on the bandwagon and the ATO believes that some of them are failing to declare the profits (and in some cases the losses) they are making on their investments.
Remember, investing in cryptocurrencies can give rise to capital gains tax on profits.
Traders can be taxed on their profits as business income.
Sharing economy: The ATO will also be looking closely at those working in the shared economy to ensure that income and expenses are correctly reported.
Examples include services such as:
- Ride-sourcing — transporting passengers for a fare (such as Uber drivers).
- Renting out a room or house for accommodation (Airbnb hosts are the obvious example).
- Renting out parking spaces.
- Providing skilled services — web or trade services, etc. (Airtasker workers, for instance).
- Supplying equipment, tools, etc.
- Completing odd jobs, errands, deliveries, etc.
- Renting out equipment such as tools, musical instruments, sports equipment, etc.
* Mark Chapman is the Director of Tax Communications at H&R Block.
This article first appeared at www.lifehacker.com.au.
