Every year we hear from the Tax office about the latest Industries that they will target and things they will be looking for.

The objective of this is to get people thinking about their returns and phase out ‘dodgy’ practices.

So, what is the Tax office(ATO) targeting this year?

They ultimately look at 2 key areas which include: work-related expenses and claims by investment property owners which we will discuss in this article and touch on a relative new area the ATO is focusing on- The Share economy.

Work-related deductions

This is an area that has been increasing looked at for some years especially in certain industries, so it’s no surprise that the ATO plans to look more closely in this area. The attention this year will be on:

– Claims for work-related clothing, dry cleaning and laundry expenses. (For instance, the ATO has flagged that it will check taxpayers who take advantage of the exemption from keeping receipts for spending less than $150 on laundry expenses; it believes that too many people are claiming this without actually incurring the expense. So, it is best to double check you past returns and if you are using an Accountant that he is not claiming this on your behalf with no proof)

– Deductions for home office use.

– Overtime meal claims.

– Union fees and subscriptions.

– Mobile phone and internet costs.

– Motor vehicle claims where taxpayers take advantage of the 66 cent per kilometre flat rate for journeys up to 5000km. (The ATO is concerned that too many taxpayers are automatically claiming the 5000km limit regardless of the actual amount of travel.)

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. (The ATO believes that some taxpayers are claiming this – or an amount just less than $300 – without actually incurring the expenses at all.)

The above examples are areas that an Accountant is driven by the information you provide and, in some cases, put down by the Accountant without your knowledge. So, it is best to double check to avoid any issues.

The best thing you can do to protect yourself is be confident that you understand what you can and can’t claim and that you have the necessary proof (invoices, receipts, diaries, etc) that you actually incurred the expenditure and that it was related to your work or business.

The Tax office will also take a closer look at the increasing investments in cryptocurrencies such as 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. This is a new area and many Investor’s do not understand their obligations under the current rules and again really on hearsay to get them by. Remember that this is treated the same way any other investment is and will have Capital gains tax applicable if there are profits.

Property

People claiming tax deductions in regard to their Investments properties or holiday homes have always been looked at and this year is no different.

About 8% of the population – own an investment property, according to ATO figures, so this is a large and growing area for it to examine:

– The ATO has announced it will pay 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 so be sure to clearly separate the expenses and keep separate accounts if possible for this.

– It will also look 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. (e.g. 50/50 The splits are proportional to expenses and rent.)

– It will look at holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods when the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed. This is particularly important for holiday homes, where the ATO regularly finds evidence of homeowners claiming deductions for their holiday pad claiming it is being rented out, when in reality the only people using it are the owners, their family and friends, often rent free.

– It will keep 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. Instead, these are deductible over a number of years. Expect to see the ATO checking such claims and pushing back against those that don’t stack up.

Share economy

Individuals using a second source or primary source of income in this space has become more common and the Tax office wants to ensure reporting in this area is correct. Examples quoted by the ATO include services such as:

– Renting out a room or the whole house for accommodation. (A prime example of this is AirBnb.) The biggest issue around this is also selling the home if you still include this as your main residence come tax time as the law prevents a full CGT exemption where part of a Main Residence has been used to earn income.

– Ride-sourcing – transporting passengers for a fare e.g. Uber and Olga

– Renting out parking spaces. (e.g. Parkhound or Parkey)

– Providing skilled or general services – web or trade services (Airtasker workers, for instance)

– Supplying equipment, tools, etc. for payment (e.g. Placing an ad on Gumtree regularly to rent out tools and machinery.)

– Completing odd jobs, errands, deliveries for payment etc.

Please remember the Tax office (ATO) has access to a lot more resources than you do and can look at your social media history, third party records and numerous sources so be careful about the information you are declaring.

The golden rule here is if you can’t prove it or have evidence of it then you cannot claim it.

Ensure you have all your invoices, Tax receipts and statements for anything related to your Employment, Studies and Investments as well as keeping clear records of when Assets were or were not Investments e.g. Rental Listings.

RP Wealth Management have partnered with a number of Accounting firms in the Macarthur region and in the surrounding suburbs including Camden, Campbelltown, Oran Park, Narellan, Bossley Park, Liverpool and the Greater Western Sydney. So, if you require assistance in this area, please feel free to reach out to us.

Below are some useful links to asst you with understanding your obligations and staying within the legal limits.

https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/

https://www.ato.gov.au/General/Property/Residential-rental-properties/