With tax time just months away, the Australian Taxation Office (ATO) has outlined the main areas on their watchlist.
An ATO spokesperson told Yahoo Finance that work-related expenses, rental deductions, and capital gains from cryptocurrency, property and shares are its main focus areas this year.
So, to avoid any issues with claiming your tax return come the end of the financial year, the ATO and H&R Block Australia director of tax communications Mark Chapman have outlined what Aussies need to be aware of.
Also read: Why some jobs tax you more than others
Work from home expenses
The ATO spokesperson said work from home expenses will be a major theme this year with many Aussies still working remotely due to COVID restrictions.
“The temporary shortcut method for claiming working from home expenses during COVID-19 is available for the full 2020-21 financial year,” the ATO spokesperson said.
“This allows people with working from home expenses to claim an all-inclusive rate of 80 cents per hour for every hour people work from home, rather than needing to separately calculate costs for specific expenses and apportioning the work and private component.”
While this is a very helpful measure, the ATO said it is important to still keep a record to prove the claim. This means having some sort of proof that you were actually working from home and the hours worked.
“If you use the temporary shortcut rate, that record is the number of hours you worked from home, for example, using a timesheet,”the spokesperson said.
Chapman said the ATO is focusing on work related expenses this year in particular after finding there was an $8.7 billion shortfall between the tax individuals are expected to pay and the tax they’re actually paying.
“The ATO believes that 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,” Chapman said.
The ATO said everyone should be aware of the three golden rules for claiming work from home expenses:
you must have spent the money and not have been reimbursed
the expenses must directly relate to earning your income and must not be private in nature, and
you must have a record to prove it (usually a receipt).
Claiming without a receipt
The taxman will be focusing on claims that come under the threshold for requiring a receipt of purchase, Chapman said.
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 will be a major focus, Chapman said.
“The ATO believes that some taxpayers are claiming this – or an amount just less than $300 – without actually incurring the expenses at all,” he said.
Additionally, claims for work-related clothing, dry cleaning and laundry expenses are of particular focus this year.
“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,” Chapman said.
Chapman said other areas to be cautious in claiming reductions for are:
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 as work-related
Motor vehicle claims where taxpayers take advantage of the 68 cent per kilometre flat rate available for journeys up to 5,000kms (the ATO is concerned that too many taxpayers are automatically claiming the 5,000km limit regardless of the actual amount of travel)
Shares, property and crypto
The ATO said many people make mistakes when it comes to accurately declaring money made from investments.
“We often see lots of mistakes in early July as people rush to get their tax returns done and forget to include income from banks, dividends from shares, sharing economy platforms and cryptocurrency exchange,” the ATO spokesperson said.
“This information will be automatically included in your tax return by the end of July. If you want to lodge earlier, you must take care to manually add all your income.”
Chapman said the property space is one of growing interest for the ATO as the property sector itself continues to grow.
According to ATO figures, around eight per cent of the Australian population own an investment property.
Additionally, the ATO recently said it believes errors in rental property claims is the second biggest component in the $8.7 billion tax gap.
“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,” Chapman said.
“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.”
And when claiming on a newly purchased rental property, it's important to be aware that the costs to repair damage or 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,” Chapman said.
While everyone knows there are penalties for making false declarations to the ATO, the spokesperson said there is a level of understanding.
“We want to reassure the community that we will be empathetic to and understanding of legitimate mistakes where good faith efforts have been made,” the ATO spokesperson said.
“However, we will apply penalties against those deliberately trying to get away with doing the wrong thing.”
Chapman said the main mistakes people make are claiming deductions they’re not entitled to, claiming an income that is not in line with their lifestyle and failing to keep proper records.
While, as mentioned above, there are a number of deductions that the ATO is keeping an eye on to ensure people aren’t taking advantage of the system, Chapman said there are still many legitimate deductions people can claim.
“We all know you've got to spend money to make money and if you spend it to produce 'assessable' income, then you will usually be entitled to a tax deduction,” he said.
“Many people trip up by inflating their deductions or claiming for something they shouldn’t but a surprising number also miss out on deductions they could have claimed. In reality there are legitimate, not-to-be-forgotten deductions that almost everyone can take advantage of.”
Chapman said that number one rule is to be able to actually show you are “out of pocket” and that the expense has been incurred as part of your job or business.
In terms of lifestyle choices, Chapman said it’s a matter of common sense.
“If you’re riding around in the latest Rolls Royce and enjoying harbourside living in one of the ritzier Sydney suburbs, but only declaring income of $10,000 on your tax return, the ATO will be looking very closely indeed at you,” he said.
“The ATO is able to assess the assets you own – cars, properties, boats, etc – and calculate the approximate amount of income you would need to support your lifestyle. If the amount of income you’re actually declaring is significantly less, you’ll trigger alarm bells at the ATO.”
Finally, you simply can’t go wrong if you have the evidence to back up your claims.
“Failing to keep records of expenses is one of the most common mistakes and one of the hardest to rectify,” Chapman said.