With the new financial year beginning, the Australian Taxation Office (ATO) has outlined the main areas on their watch list.
They have advised that work-related expenses, rental deductions, and capital gains from cryptocurrency are its main focus areas this year.
Work from home expenses
The ATO is focusing on work related expenses after finding there was an $8.7 billion shortfall between the tax individuals are expected to pay and the tax they’re actually 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.
With many Aussies still working remotely due to COVID restrictions, work from home expenses will be a major theme this year.
The temporary shortcut method for claiming working from home expenses during COVID-19 is available for the full 2020-21 financial year.
This allows people working from home to claim an all-inclusive rate of 80 cents per hour for every hour people work from home, rather than needing to separately calculate costs for specific expenses and apportioning the work and private component.
While this is a very helpful measure, the ATO said it is important to still keep a record to prove the claim. This means having some sort of proof that you were actually working from home and the hours worked.
The ATO said everyone should be aware of the three golden rules for claiming work from home expenses:
- You must have spent the money and not have been reimbursed
- The expenses must directly relate to earning your income and must not be private in nature, and
- You must have a record to prove it (usually a receipt or timesheet to prove hours worked).
According to ATO figures, around eight per cent of the Australian population own an investment property.
Additionally, the ATO recently said it believes errors in rental property claims is the second biggest component in the $8.7 billion tax gap.
The ATO has announced it will be paying close attention to:
- 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
- Deductions only being claimed for the period the property is rented or is genuinely available for rent. Deductions for properties used for both private and income-producing purposes can be claimed only for income-producing use. That means the ATO will be monitoring claims of full ownership for a partly-owned property – owners who charge “mates’ rates” rather than market rates and rent for only part of the year but claim the full year.
It is also important to remember that the costs to repair damage or defects existing at the time of purchase of an investment property, or the costs of renovation, cannot be claimed immediately as these costs are deductible over a number of years. Expect to see the ATO checking such claims.
Capital gains from cryptocurrency
There are around 600,000 people who have been investing in cryptocurrency and that number is expected to increase quite signiﬁcantly.
Many think the ATO cannot track transactions because cryptocurrency is such an opaque sector, so a key problem is users failing to keep personal records of any transactions.
Capital gains events can occur when a cryptocurrency is sold, gifted, traded, converted to cash or used to obtain goods or services. It is really important to keep receipts of any exchanges, receipts from agents, digital wallet records and the value of the currency at the time of sale or purchase.
If the disposal is part of a business you operate, the proﬁts you make on disposals will be assessable as ordinary income
How can Walsh Accountants help?
Our team of expert Accountants will help you to understand what you are entitled to claim, ensure you get that claim right, and never miss out on anything you’re entitled to.
If you need help preparing your 2020-21 financial year tax return, contact us today.