Preparing for tax time: Are you in the ATO’s sights?
A consistent theme this tax time is over claiming and under reporting.
With the Australian Tax Office (ATO) getting more and more sophisticated in its data matching approaches, taxpayers can expect greater scrutiny where their claims are more than what is expected.
We’ve taken a look at the key issues that could effect Individuals this end of Financial Year. Our team of experts are happy to assist lodging your tax return – make an appointment with AMD today.
Jump to topic:
- World Related Deductions
- Rental Property Deductions
- Earning Money from the Sharing Economy
Work Related Deductions
Last financial year, over 8.8 million taxpayers claimed $21.98 billion in deductions for work related expenses. As such, it’s an area under intense review by the ATO.
If you claim work-related deductions, it’s important to ensure that you are able to substantiate any claim you make.
To claim a deduction, you need to have incurred the expense yourself and not been reimbursed by your employer or business, in most cases you need a record proving you incurred the expense, and the expense has to be directly related to how you earn your income – that is, the expense is directly (not sort of) related to your work. This also means ensuring that you only claim the work-related portion of items you use personally, such as mobile phones or internet services.
When you don’t have to keep records…
- Any work-related deductions under $300
- Work-related clothing has $150 record keeping limit
However, if you have claimed an amount up to the record keeping threshold, you may find that the ATO will ask you to explain how you came to that amount. If you don’t have diary entries or a good explanation, your claim may be denied.
Working from home…
If you don’t have a dedicated work area, but do some work on the couch or at the dining table, you can claim some of your expenses:
- Work-related portion of your phone and internet expenses
- Decline in value of your private computer
If you have a dedicated work area, there are a few more expenses you can claim, including:
- Some running costs of your home, such as a portion of your electricity expenses
- Decline in value of office equipment
If your home is your principal place of business, you might be able to claim a range of expenses related to the portion of your home set aside for your business. The ATO is looking for is an identifiable area of the home used for business.
Ensure any claims are in proportion to the work related use. You can’t, for example, claim all of your internet expenses because you do a bit of work from home in the evenings and need the internet.
In general, you cannot claim the cost of your work clothes or dry cleaning expenses unless the clothes are occupation specific, such as chef whites, uniform with a logo, or protective gear because your workplace has hazards. Just because you have to wear a suit to work does not make it deductible.
The ATO has a special taskforce dealing specifically with Cryptocurrency, which is considered an asset for tax purposes, rather than a form of currency.
Any gains or losses made on disposal or exchange of cryptocurrency will be captured under the tax system. You will need to keep records of all of your trades in order to work out whether you’ve made a taxable gain or loss each time you dispose of an asset.
Capital Gains Tax (CGT) can be complex and this is an area that the ATO is looking very closely at, particularly where taxpayers are claiming large losses. If you have any questions or concerns, make an appointment to speak with our AMD team of experts.
Rental Property Deductions
In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions. The ATO believes that is too much, with one in ten estimated to contain errors.
What you can claim for your rental property has changed significantly. For example, you can no longer claim deductions for:
- The cost of travelling to inspect the property
- Depreciation on second hand plant and equipment
- Depreciation on assets already in a newly-acquired investment property, such as kitchen appliances and carpet.
From 1 July 2017, you can only claim deductions for new assets you purchase and install in the property.
It’s estimated 4,500 audits of rental property deductions will be undertaken this year with the focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing.
Deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim.
When you own a share in a property…
For tax purposes, rental income and expenses need to be recognised in line with the legal ownership of the property – except in very limited circumstances. The ATO will assume that where the taxpayers are related, the equitable right is the same as the legal title unless there is evidence to suggest otherwise.
If you hold a 25% legal interest in a property then you should recognise 25% of the rental income and rental expenses in your tax returns, even if you pay most or all of the rental property expenses. The ATO would treat this as a private arrangement between the owners.
There are exceptions, however, so make an appointment with AMD to see if we can help.
Earning Money from the Sharing Economy
Income earned from the sharing economy – such as AirBNB, Uber, AirTasker etc. – must be declared in your tax return. However, you may also be able to claim proportional expenses associated to providing the service. Ensure that any deductions you claim are related to providing the service itself, and, if you are a driver with Uber or another platform, you will need to be registered for GST regardless of how often you drive.