With tax return preparation season in full swing, it is important to consider the Australian Taxation Office’s (ATO) focus areas for 2023 if you want to stay under their radar and avoid costly reviews or audits.
Rental Property Deductions
The ATO is losing patience and is telling landlords to “listen up.” The ATO claims 9 in 10 landlords are getting their returns wrong, with rental income being left out or mistakes being made with property related deductions – like overclaiming expenses or claiming improvements to private properties.
One area of particular concern is the treatment of interest deductions. The ATO emphasises the importance of only claiming interest expenses that are directly associated with the portion of the loan used for purchasing the rental property. Any additional borrowing for personal purposes such as home renovations or vacations, cannot be claimed as an interest deduction, notwithstanding that the amount borrowed may be secured over the rental property.
The ATO has sophisticated data matching capabilities which include rental property-related data and has recently implemented a new residential investment property loans data matching program.
The ATO is also looking closely at personal expenses that individuals may inadvertently include as expenses relating to their rental property. These expenses include repairs, maintenance or purchases related to the property. To ensure compliance, it is essential to maintain detailed receipts and only claim deductions that are directly applicable to your rental property.
Working from Home Expenses
The rules have changed for calculating deductions for working from home expenses this year. The ATO is warning taxpayers not to ‘copy & paste’ from last year’s work papers.
To claim deductions for working from home expenses, you have the option to use either the actual cost method or the revised fixed rate method, provided that you meet the eligibility criteria and maintain proper record-keeping practices.
Under the revised fixed rate method, the hourly rate for tax deductions has increased from 52 cents to 67 cents per hour worked from home. The revised method covers a broader range of eligible expenses than prior years, including electricity, gas, phone and internet usage, computer consumables, and stationery. Be cautious that no additional deductions for any of these expenses covered by the rate can be claimed if you use this method.
You can, however, separately claim the work-related portion of the decline in value of depreciating assets such as office furniture and computers.
The actual cost method has not been changed. Taxpayers can claim the actual work-related portion of all running expenses. This includes keeping detailed records of all the working from home expenses.
Regardless of the method you choose, it is important to keep a diary (a timesheet or roster) that accurately records all hours worked from home.
The ATO also reminds taxpayers that if they are claiming their working from home expenses, they cannot claim a deduction for expenses which have already been reimbursed by their employer.
Capital Gains Tax: make sure you consider all assets?
Capital gains tax (CGT) comes into effect when you dispose assets such as shares, cryptocurrency, managed investments or properties. To ensure that you are meeting your obligations and paying the right amount of tax, you need to calculate a capital gain or capital loss for each asset you dispose of unless an exemption applies.
Generally, your main residence is exempt from CGT, however, if you have used your home to produce income, such as renting out all or part of it through the sharing economy, for example Airbnb, or running a business from home, then CGT may apply.
Do not fall into the trap of thinking the ATO will not notice if you sell an asset for a gain and do not declare it. The ATO undertakes data matching against public records and Artificial Intelligence (AI) is actively being utilised to cross check the contents of your tax return.
An Additional Word on Cryptocurrency
It is important to recognise that when it comes to cryptocurrency and the possible tax implications, the ATO is probably already well aware of these transactions. In fact, the ATO is issuing warning letters, indicating that you possibly bought or sold cryptocurrency.
If you have sold any cryptocurrency, whether it resulted in a gain or a loss, it is essential to declare that income in your tax return. Even swapping one cryptocurrency for another is regarded as a taxable event in the eyes of the ATO.
Stay Compliant By Working with Calibre Business Advisory
If you have questions about what you can and cannot claim or the lodgement process of your tax return, please contact Calibre Business Advisory on (02) 9261 2177. Our dedicated team will be more than happy to assist. Our expertise and up-to-date knowledge of tax laws and regulations can help ensure compliance and maximise deductions within the boundaries of the law.