Every tax time, the ATO focuses on certain hotspots where taxpayers are prone — either accidentally or deliberately — to make errors. These are the areas it will concentrate its audit firepower on, and for those who have made claims in areas which the ATO will be targeting, they can be a wake-up call both to ensure that you get it right this year and that you go back and check that you did it right last year.
So, what is on the ATO’s list this year? Well, essentially, they’re looking at two main areas: work-related expenses and claims made by investment property owners.
The ATO recently claimed that there was an $8.7 billion shortfall between the tax individuals are expected to pay and the tax they actually are paying. The ATO believes that work-related expenses claims are the biggest element in that “tax gap” and have signalled that they’ll be looking closely at these deductions this year. In particular, they’ll be looking closely at:
All these are areas where we know taxpayers often make mistakes, often not helped by misleading or vague advice from the ATO about how the law actually works. Our top tip before making any claim is to 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 spotlight
The other main focus this year is on people who make deduction claims in relation to investment properties and holiday homes. Over 1.8 million people — or about 8 per cent of the Australian population — own an investment property, according to ATO figures, so this is a large and growing population for them to focus on. The ATO believes errors in rental property claims are the second biggest component in the $8.7 billion tax gap (after work-related expenses), and indeed, they recently announced that in a series of audits, the ATO found errors in 90 per cent of returns reviewed. So, this year, expect them to focus on the following:
Don’t forget, the ATO has access to numerous sources of third-party data including access to popular holiday rental listing sites such as Stayz and Airbnb, so it is relatively easy for them to establish whether a claim that a property was “available for rent” is correct.
The key tip is to ensure that property owners keep good records. 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 hotspots
Cryptocurrency
The ATO will also be taking a closer look at the booming market in investments in cryptocurrencies like 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. Remember, investing in cryptocurrencies can give rise to capital gains tax on profits. Traders can be taxed on their profits 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 to be provided to the ATO will include cryptocurrency purchase and sale information. The data will identify taxpayers who fail to disclose their income details correctly.
The ATO estimates that there are between 500,000 and one million Australians that have invested in crypto assets.
Sharing economy
The ATO will also be looking closely at those working in the shared economy to ensure that income and expenses are correctly reported. Examples quoted by the ATO include services such as:
Mark Chapman, director of tax communications, H&R Block
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