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With tax time fast approaching, the professional body has outlined some of the claims that may attract additional scrutiny from the Tax Office this year.
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CPA outlines ATO focus areas for expenses this tax time
05 June 2024
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CPA Australia has revealed its tips for avoiding any tax claim complications. To begin with, companies and individuals should avoid disproportionate expense claims. This is likely to “set off alarm bells with the ATO,” and things that make you stand out should be avoided at all costs.
It’s not as simple as dodging an ATO employee. According to CPA, the government agency uses data analytics to identify any discrepancies, basing it off things like employment type and financial investments to catch those trying to claim more than they should.
“It’s important that everyone pays the right amount of tax and claims what they are entitled to. The ATO uses highly sophisticated analytics to scrutinise all claims, including those relating to working from home and motor vehicle expenses, income from rental properties, as well as undeclared income from investments like cryptocurrency,” said CPA Australia spokesperson Gavan Ord.
“Your tax return is your personal responsibility, and you should be as thorough as possible when declaring your income and claiming deductions. Failure to properly declare all of your income, or over-the-top expense claims, may set off alarm bells and your claims could be rejected if you don’t have the evidence.”
Work-related expenses are the biggest deduction for most businesses, noted CPA. This is where evidence could be a lifeline. This includes things like:
- A record of hours worked from home, for example a timesheet
- Evidence of running expenses such as phone and electricity bills
- Receipts and supporting documents for depreciating assets, like technology and office furniture
Working from home has blurred the lines a little in regards to deductions. According to CPA, there are two ways to calculate working from home deductions
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“The fixed rate method (when you can claim a set rate of 67 cents for every hour worked from home) and the actual cost method. Having records mean you can choose which works best based on your individual circumstances.”
Meanwhile, CPA’s tips for handling other expenses are:
Motor vehicle expenses: “If you use a motor vehicle for both business and private use, you must be able to correctly identify and justify the percentage you are claiming as business use. The percentage that is for private use isn't claimable. To claim accurately, you will need to use a logbook or diary to record private versus business travel. Travelling from home to work is considered private use, unless you are a home-based business and your trip was for business purposes.”
Income from rental properties: “For rental property claims, the ATO is focusing on owners who make claims for renovations as repairs. Repairs to the property because of wear and tear or damage from tenants are tax deductible. However, if the work results in an improvement rather than just repairing damage, or results in the replacement of an asset, the expenses will be capital in nature and you can only claim a depreciation expense, not for the entire cost in the year it was spent. Claiming mortgage interest in full when there were drawdowns for private purposes, as well as declaring net income after expenses from annual rental summary of real estate as gross income, will also be under the microscope.”
Undeclared income (e.g. crypto profits): “The ATO is also focused on undeclared income, now including money made from cryptocurrency. The most common use of crypto is as an investment, in which case the crypto asset is subject to capital gains tax (CGT). If you acquire a crypto asset as an investment, transactions such as disposal, exchange or swaps are a CGT event, and you may make a capital gain. If you hold the crypto asset as an investment, it will not be exempt from CGT as a personal use asset. You will make a capital gain if the proceeds from the disposal of your crypto asset is more than its cost base. To work out if you made a capital gain or capital loss from each CGT event, keep your records for each crypto asset and your transactions. You may be able to reduce capital gains using the CGT discount if you hold your crypto asset for at least 12 months.”
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