Tax Hot Spots

The ATO focuses every year on certain hotspots where taxpayers are prone to making mistakes - either accidentally or deliberately.

What is expected to be on the ATO's list this year? There are two main areas they will examine; work-related expenses and claims made by investment property owners.

There is a $9 billion gap between the tax individuals should pay and what they actually pay, according to the ATO. ATO officials have indicated that they will closely scrutinize work-related expenses this year in order to close the "tax gap". Their attention will be focused on:

• There are new rules regarding deductions for working from home, particularly in light of the ATO's new 67 cents per hour fixed rate, which will see many taxpayers caught out for failing to provide appropriate substantiation.
• People who claim the whole (or a substantial part) of their personal mobile phone bill as work-related are particularly targeted. New this year is a cross-over with home working claims, since the new fixed rate per hour includes both mobile phone usage and internet usage - the ATO will be watching for double dipping!
• Claims for work-related clothing, dry cleaning and laundry expenses, especially when the amount of working from home could be expected to have led to a reduction in these claims
• Overtime meal claims
• Union fees and subscriptions
• Taxpayers who take advantage of the flat rate of 78 cents per kilometer for journeys up to 5,000km (the ATO is concerned that too many taxpayers are automatic claiming 5,000km regardless of actual journey distance)
• An incorrect claim of deductions under the rule that allows taxpayers to claim work-related expenses without receipts for up to $300 in total (the ATO believes some taxpayers claim this - or an amount just less than $300 - without actually incurring the expenses at all.).

Property

In addition to the deduction claims related to investment properties and holiday homes, the focus will also be on people who make them this year. The ATO recently reported that in a series of audits, 90% of returns reviewed contained errors. As part of the data-matching protocol, 17 of the largest mortgage lenders will supply the ATO with financial information on taxpayers, which can then be cross-checked with information provided on individual tax returns.

So, this year, expect them to focus on the following:

• 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.
• 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.
• 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.
• 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.

Other Hotspots

Cryptocurrency

Investors in cryptocurrencies like Bitcoin will also be scrutinized by the ATO. There are more and more taxpayers jumping on the bandwagon, and the ATO is concerned that some of them are not declaring their profits (and losses) on their investments. It is important to remember that investing in cryptocurrencies can result in capital gains tax on profits. Profits earned by traders can be taxed as business income.

To help them in their search, the ATO is collecting bulk records from Australian cryptocurrency designated service providers (DSPs) as part of a data matching program to ensure people trading in cryptocurrency are paying the right amount of tax. Data includes cryptocurrency purchase and sale information. The data will identify taxpayers who fail to disclose their income details correctly.

Sharing Economy

Those in the sharing economy will also be scrutinized by the ATO to ensure that their income and expenses are reported correctly.  A new statutory requirement from 1 July 2023 requires sharing economy platforms to provide information on a large number of sharing economy participants.

Examples quoted by the ATO 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). The ATO is believed to be particularly concerned about taxpayers claiming the full CGT main residence exemption when part of their main residence has been rented out through Airbnb; the law prevents a full CGT exemption where part of a main residence has been used to earn income.
• 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.