Claims made by investment property owners as well as work-related expenses are set to be firmly in the sights of the ATO at tax time this year.
H&R Block director of tax communications Mark Chapman said that, each year, the tax office targets specific areas where taxpayers are prone to making errors either accidentally or deliberately.
Specifically, greater scrutiny of deduction claims related to investment properties is anticipated, as Mr Chapman pointed out that recent ATO audits found errors in 90 per cent of returns.
“The focus on investment property owners is likely to be particularly pronounced because rental losses are likely to be bigger than normal this year due to the hit that rental returns have taken during the COVID-19 crisis,” he said.
The ATO is expected to look at excessive interest expense claims, including when a property owner has tried to claim borrowing costs on their family home as well as their rental property.
H&R Block also predicted that the incorrect apportionment of rental income and expenses between owners would be an area of focus, such as deductions on a jointly owned property that are claimed by the owner with a higher taxable income instead of jointly.
Furthermore, incorrect claims for newly purchased rental properties are expected to be on the ATO’s radar. H&R Block explained that the costs to repair damage and defects that existed at the time the property was purchased and the costs of renovation cannot be claimed immediately but are instead deductible over a number of years
Finally, rental property owners have been warned to only claim for periods where a property is rented out or is genuinely available for rent and not when a property is used as a personal holiday home.
“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,” Mr Chapman suggested.
Work-related expenses
Alongside claims from investment property owners, the ATO will also be increasing its attention on work-related expenses, according to H&R Block.
“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,” he said.
“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.”
Mr Chapman said that deductions for home office use, including claiming for ‘occupation’ costs such as rent, rates and mortgage interest, would be one target area for the ATO.
He noted that these deductions are not allowable unless an individual is actually running a business from home.
Costs for mobile phones and internet will also be another target area, especially for those claiming all or a significant portion of their bills as work-related.
“The focus on home office, mobile phone and home internet costs is likely to be particularly pronounced with so many people working from home due to COVID-19,” said Mr Chapman.
Other anticipated focus areas include claims for work-related clothing, dry cleaning and laundry expenses, COVID-related tax deductions including quarantine expenses and protective equipment, overtime meal claims, and union fees and subscriptions.
The ATO is also honing in on individuals who use the 72 cent per kilometre flat rate for motor vehicle claims, as Mr Chapman noted that the tax office is concerned too many people are automatically claiming the maximum 5,000 kilometres that is able to be claimed under the method.
Furthermore, the ATO is concerned that some taxpayers are claiming work-related expenses of $300 or slightly less, which can be claimed without receipts, when they haven’t actually incurred these expenses.
“H&R Block’s 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,” Mr Chapman concluded.
