Millions of Australians are obligated to lodge their income tax returns between 1 July and 31 October. The Australian Taxation Office (ATO) understand that this year’s tax time will be vastly different than many others, but that doesn’t mean they’ll let things slide. In fact, they might be more vigilant because of the changes.
How can you stay out of hot water with the ATO?
The ATO expect some people to make mistakes. If that’s the case, a simple amendment will be required. Sometimes these amendments will incur fees and penalties. The best course of action is to be accurate, but there are certain areas many people make mistakes.
Work Related Expenses
The ATO has three golden rules.
- The expense must be work-related
- You must be out of pocket
- You must be able to prove your expense
Many Australians experienced changed working conditions in 2020-21 and were required to work from home. This will lead to many expenses individuals would not normally incur and that might lead to mistakes on their tax returns. The ATO’s focus will be on working from home claims, work-related clothing, phone and internet expenses and claiming meals. The ATO realise the phone and internet expenses will likely have a personal and business component and will be on the lookout for people claiming one hundred percent of these costs. Unless your phone is strictly bought for work, and your computer is only at a workplace, you’ll bring unwanted attention to yourself if you claim the whole bill. In order to claim correctly, you’ll need to apportion your costs between business and private use. You can then claim the business portion as a tax deduction.
Claiming work-related clothing is often misconceived. Only clearly identified uniforms, such as a nurses or doctors scrubs, high-vis vests or steel-capped boots can be claimed. Only then if these articles of clothing are directly work-related. Purchasing steel-capped boots for your home gardening is not a valid claim. The ATO will job match your claims with sophisticated software programs and will run them against key data of your industry.
The ATO has introduced a fixed rate to claim working from home costs. A flat rate of 80 cents per hour can be claimed, which covers your phone and internet, heating and cooling. Claiming this short cut rate and then claiming your phone expenses as a separate expense is a big no-no. Double dipping is strictly prohibited, and unless you want to be flagged, it’s best to know your limits.
Many Australians fall into the trap of double dipping car expenses as well as working from home expenses. To claim your car expenses, you’ll need a log book, receipts and tax invoices. The car expenses that can be claimed include:
- Fuel and petrol
- Repair and maintenance
- Interest on the loan of the motor vehicle
- Lease payments
To claim car expenses, the ATO allows the cents per kilometre method or the actual cost method. It’s best to know which costs are covered in each method. They are not the same. Some Australian fall into the trap of claiming the cents per km method, and then claiming the actual costs of registration, insurance and fuel later in their return.
Pro Tax Tip: The cost of travelling from home to work is not generally a tax deduction. It’s considered private and not a claimable expense.
The misconception of being able to claim an automatic $300 has circulated for years. You can claim sundry items as a full expense claim, but you will need receipts. These sundry expenses must always be work-related. The ATO red flags Australian who claim the full $300 of expenses where there really are none. There are no ‘free’ deductions.
As we’re well aware, 2020-21 saw a lot of Australian work from home. If you usually claim laundry expenses such as cleaning, repairing and maintaining your work clothing be aware the ATO will be on the lookout for people who claim full laundry costs when they have been working from home and will compare these claims against previous years.
Pro Tax Tip: Expenses related to cleaning, repairing and maintaining work clothing can be claimed at $1 per laundry load if the load is only work clothing, and 50 cents per load for a combined wash, however you’ll need to keep a diary of your wash cycles to back up your claims.
Around 8 percent of Australians have an investment property or holiday home. Discrepancies in false or wrong claims will be a highlight this year. Excessive claims where property owners claim borrowing costs on their family homes as well as their rentals will be red flagged, as well as incorrectly appointing rental income and expenses between property.
Unless you have a business of letting out commercial rentals, travel costs cannot be claimed. Driving to your rental property is not a valid expense. You’ll also need to prove that your rental or Air BNB was rented and not claim private holidays. Make sure you keep good records, which include receipts, bank statements and tax invoices to substantiate your claims.
Pro Tax Tip: Interest on rental loans can be claimed however you’ll need to make sure your loan is not also used for personal living expenses and items.
Many Australian confuse how to claim capital works on their rentals. Initial work completed on a recently bought property cannot be claimed as a tax deduction because it is classified as capital works, as are major improvements and renovations. General repairs and maintenance are immediate deductions, while larger works may need to be spread over a number of years.
Cryptocurrency is regarded as an asset and will attract capital gains tax. Purchasing cryptocurrency is not a faceless affair. The ATO are on the lookout for Australian who omit their crypto income if gains are not declared. The ATO closely track where cryptocurrency interacts through real world data from banks, financial institutions and exchanges and will follow the money trail to the taxpayer. The ATO will then match this data to an individual’s tax return. The ATO has flagged around 300,000 Australians who hold cryptocurrency assets this tax time.
Pro Tax Tip: Cryptocurrency gains or losses need to be declared if it is traded, sold or gifted; exchanged into another type of crytocurrency; converted to a fiat currency; or used in exchange for goods or services.
What Happens If I Make a Mistake
First of all, don’t panic. ITP Accountants have an open communication with the ATO and can often sort out a range of issues without incurring fees or penalties. However, if the data was deliberate, you’ll need someone on your side.
An ITP Accounting Professional will walk you through the intricacies of lodging your tax return and will prompt and question your claims before they are lodged. You’ll have peace of mind knowing everything had been done properly the first time – and they will go out of their way to make sure you haven’t forgotten any of your claims. Phone 1800 367 487 and chat with a professional today.