This year’s been a roller coaster ride but that doesn’t mean we can’t make tax time just a tad bit easier for you. As we welcome a new financial year, it’s time to start preparing your tax claims for the previous year and maybe even get a jump start ahead of the 31 October deadline. To make sure you’re on the right track, here’s a list of tax claims the ATO will be closely monitoring.
By now, it shouldn’t come as a surprise the ATO focuses on certain hotspots at tax time to call out taxpayers who have either accidentally or deliberately made errors. To avoid falling into a trap, here’s what you need to look out for in two key areas: work-related expenses and claims for investment properties.
But before we jump into this, it’s probably good to have a heads up on the ATO’s website experiencing issues due to a high volume of traffic. In its most up-to-date tweet, it’s said: “You may be experiencing some delays accessing our online systems, we are aware of this and are working on it as a priority.”
From the comments the tweet’s received, it’s safe to say people are less than thrilled.
Work-related expenses for tax deductions
According to the ATO, there was a $8.7 billion shortfall in the amount of taxes it should have collected in 2019. Mark Chapman, director of tax communications, H&R Block, told Lifehacker Australia the ATO believed claims for work-related expenses play a big role in the ‘tax gap’ and have called out they’ll be closely monitoring these claims this year.
More specifically, they’ll be looking at:
- Claims for work-related clothing, dry cleaning and laundry expenses
- 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)
- 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 focus on home office, mobile phone and home internet costs is likely to be particularly pronounced with so many people working from home due to COVID-19,” Chapman said.
“Before making any claim, 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 work or business related.”
Property investment claims
On the other end, the ATO will keep a hawk’s eye on claims made on investment properties and holiday homes.
The ATO commissioner, Chris Jordan said at the Tax Institute’s National Convention in Hobart in 2019 the tax office had audited claims for over 300 rental property and ‘found errors in almost nine out of 10 returns reviewed’.
Keeping the above in mind, Chapman believes this year the ATO will 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.
The H&R director said focus on investment property owners is likely to be particularly pronounced because rental losses may be bigger than normal this year due to the hit that rental returns have taken during the COVID-19 crisis.
“The key tip here is to ensure that property owners keep good records,” he said.
“The golden rule is; if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.”
Other focus areas for the ATO this year
Other key issues to be aware of this year, when filing your tax return:
- If you lost your job or had your hours reduced as a result of COVID-19, it’s possible that your employer will have over-deducted tax earlier in the year in relation to your wage or salary. That could mean you’re entitled to a bigger than normal refund when you lodge your tax return this year.
- If you received the $1,500 per fortnight JobKeeper payments from your employer or through your business, this is included in your taxable income for the year and will need to be added in to your tax return
- Most employers are no longer obliged to provide you with a payment summary. Instead, they report your year-end details directly to the ATO. You’ll be able to use online services via myGov to access these.
- You may be entitled to the low and middle income tax offset if your taxable income is less than $126,000. The base amount is $255, rising to a maximum of $1,080. The actual amount you receive will depend on your individual circumstances, such as your income level and how much tax you have paid throughout the year.
How to prepare for tax return
Chapman recommends taking out time to gather all the information you’ll need to do your tax returns, including invoices and receipts for work-related expenses and any bank or credit card statements that include a list of your work-related expenses that you no longer have (or never had) receipts or invoices for.
“If you don’t have the paperwork, you can’t claim a deduction so it makes sense to set aside this time in advance of the end of the financial year to spare yourself a stressful document hunt whilst you’re actually in the process of getting your return prepared.”
Additionally, if you’re making claims for expenses that fall under the work category and private use simultaneously (such as for the use of a personal mobile phone), “set some time aside to work out what a reasonable apportionment is for the work-related bit”.
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UPDATED 1 July 2020: New information added to give readers a heads up on ATO website experiencing issues due to a high volume of traffic.