Whether you plan on completing the tax return yourself or will be using an accountant or tax agent, it’s important to ensure you declare all your income and take care that you are following the rules when claiming deductions. Even a simple mistake may capture the attention of the Australian Taxation Office (ATO).
“The ATO has advanced data analytics and matching techniques that help us identify, monitor, treat and prevent incorrect claims. In addition to what individuals report on their tax return, we collect over 600 million pieces of data from third-party sources,” an ATO spokesperson told Canstar. “We will use the data we collect and our advanced data analytic tools to risk assess every tax return that is lodged. Where we detect a claim that is higher than expected or missing income this can delay the return whilst we correct the errors or audit the claims that are being made.”
What the ATO will be watching this year
There will be four key areas the ATO will be paying particular attention to this year, according to the spokesperson.
1. Work-related expenses
The ATO estimates that incorrectly claimed work-related expenses contribute almost $4.4 billion to the ‘tax gap’. The ATO describes the tax gap as “an estimate of the difference between the amount of tax the ATO collects and what we would have collected if every taxpayer was fully compliant with tax law.” It’s perhaps not surprising then that work-related expenses will be a strong focus for the ATO this tax time.
If you are claiming work-related expenses the ATO spokesperson suggested you don’t forget these golden rules:
- 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.
- You must have a record to prove it (usually a receipt).
“We often see people claiming for things where they never actually spent any money. When we question them, we often find it’s because they thought everyone is entitled to a ‘standard deduction’ of $300,” said the ATO spokesperson. “While it is true that individuals don’t need receipts for claims up to $300, they must have actually spent the money.”
It’s also important to remember the difference between work-related and personal expenses. “Anyone that is unclear about whether or not they can claim a deduction should consider how the expense is connected to earning income,” explained the ATO spokesperson. “Even if steel-capped boots or other items of protective clothing are part of an unofficial dress code, they are only deductible if there is a specific safety requirement.”
Another common mistake the ATO sees is people ‘double-dipping’. “The most common category for double-dipping is generally car expenses,” the ATO spokesperson told Canstar. “For example, we see people claiming work-related car expenses using the cents per km method and then claiming actual car expenses such as rego, insurance, and fuel later in their return.”
2. Working from home claims
Another area this ATO will be focusing on this year is work from home claims – particularly in light of the shortcut method that was introduced as a result of COVID.
“We will be looking at working from home claims to ensure people have kept a record for the time they have been working from home and haven’t claimed for expenses that are already covered in the shortcut method,” said the ATO spokesperson.
“We are concerned that some taxpayers may be either accidentally or deliberately double-dipping by claiming their working from home expenses using the all-inclusive temporary shortcut method while claiming for specific items such as laptops or desks. It’s important to remember that if someone is claiming under the temporary shortcut method, they cannot claim a separate additional deduction for any expenses they incur as a result of working from home.”
3. Capital gains from cryptocurrency
“We will be paying close attention to capital gains this year, in particular from cryptocurrency as well as traditional property and shares,” the ATO spokesperson told Canstar.
According to the ATO, you must report the disposal of cryptocurrency for capital gains tax (CGT) purposes if you have done any of the following:
- Traded, sold or gifted cryptocurrency
- Exchanged one cryptocurrency for another cryptocurrency
- Converted cryptocurrency to a fiat (government-issued) currency, for example to Australian dollars (AUD)
- Used cryptocurrency to obtain goods or services.
“Despite a view that cryptocurrency transactions are anonymous, people should be aware that the ATO receives bulk records from Australian cryptocurrency designated service providers as part of a data matching program,” warned the ATO spokesperson. “We are able to match this data to an individual to ensure people trading in cryptocurrency are paying the right amount of tax. Data provided to the ATO includes cryptocurrency purchase and sale information.”
4. Rental property deductions
If you are a landlord, it’s important to have your records in good order to ensure you are correctly reporting your expenses and rental income, said the ATO spokesperson.
For example, if you take out a loan to purchase a rental property, you can claim interest (or a portion of the interest) as a tax deduction. “However, directing some of the loan money to personal use, such as paying for living expenses, buying a boat, or going on a holiday is not deductible,” pointed out the ATO spokesperson, so it’s important that you only claim on the portion of the loan that relates directly to the rental property.
Something else to remember is that if a property is not genuinely available for rent, you will need to limit your deductions to the days when it is, said the ATO spokesperson.
Finally, don’t forget to include all rental income, especially from sharing economy platforms, added the ATO spokesperson. “We are matching data received from these providers to information in tax returns and will be following up discrepancies.”
Tips to help you avoid mistakes
Here are some tips from the ATO to potentially help you avoid mistakes when completing your tax return.
“We often see lots of mistakes in early July as people rush to get their tax returns done, however waiting a few extra weeks ensures most prefill information is available and will help avoid errors,” said the ATO spokesperson. “Income from a taxpayer’s job, bank interest, share dividends and health fund information is all available in prefill by the end of July. Unfortunately, a lot of people trying to lodge early leave this information out. That can delay their return or even result in a debt later on that they need to pay.”
Check out ATO’s industry-specific guides
If you want to have a better understanding of the types of work-related expenses you can claim it’s worth checking out the industry-specific guides the ATO has on its website. It covers a range of occupations including building and construction employees, call centre operators, hospitality industry employees and nurses and midwives to name a few.
Make sure you keep records
It’s important to keep records for any deductions you have claimed. “In circumstances where someone is not required to keep records, such as where total work-related expenses are less than $300, they still need to have spent the money on expenses that relate to their employment income before they make a claim,” explained the ATO spokesperson. “People also need to be able to show how they have calculated their claim. They cannot treat this amount as a standard, automatic deduction.”
→ Related: What can I claim on tax without receipts?
Pay attention to any messages the ATO sends
The ATO sends messages to people ahead of tax time providing them with advice about particular areas they should check before lodging their tax return, explained the ATO spokesperson. “We send over 1.5 million of these messages to people if we think they might need some extra help in understanding what should be claimed,” the spokesperson added. So, if you get one of these messages make sure you pay attention.
Look out for reminders when you’re completing your tax return in myTax
“We often remind people about transactions such as cryptocurrency, foreign income or CGT events that they may have forgotten to include,” said the ATO spokesperson, adding that you should act on the nudge messages in myTax where the ATO flags claims that appear high or outside the expected ranges.
What happens if you make a mistake
“We want to reassure the community that where we believe a good-faith effort has been made, we will be empathetic to and understanding of legitimate mistakes,” the ATO spokesperson told Canstar. “However, people can expect we will apply penalties against those people deliberately trying to get away with doing the wrong thing.”
→ Related: Visit Canstar’s Tax Hub
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