ATO tax deductions and the Hotspots for 2019

July 17, 2019 10:32 am | by John Adams

ATO tax deductions- every year the ATO announces its compliance hotspots for the year. They focus on where taxpayers are prone to accidentally or deliberately make errors in reporting. The ATO recently claimed there was an $8.7 billion tax gap, the difference between the amount they collected and what it could have collected if taxpayers didn’t over claim.

So, what’s on the ATO’s hit list this year? They are looking at two main areas; work-related expenses and claims made by investment property owners.

Work-related deductions

The ATO believes claims from work-related expenses are the biggest culprits in the tax gap.

What they will be focusing on:

Claims for work-related clothing, dry cleaning and laundry expenses. One example, taxpayers who take advantage of the exemption from keeping receipts for spending less than $150 on laundry expenses. The ATO believes too many people are claiming this without actually incurring the expense.
Deductions for home office use. Unless you’re actually running a business from home, claiming “occupation” costs like rent, rates and mortgage interest are not allowable.
Overtime meal claims.
Union fees and subscriptions.
Mobile phone and internet costs. This year the focus is on people who are claiming the whole (or a substantial part) of their personal mobile bill as work-related.
Motor vehicle claims. An example, taking advantage of the 68 cent per kilometre flat rate available for journeys up to 5,000kms. Once again, the ATO believes too many taxpayers are automatically claiming the 5,000km limit regardless of the actual amount of travel.
Incorrectly claiming deductions of work-related expenses of $300 or less without receipts. They believe taxpayers are claiming without actually incurring the expenses.

So before making any claim, be confident and understand what you can and can’t claim. Have the necessary proof including invoices, receipts, diaries etc. Be prepared to show you have actually incurred the expense and it was work or business related.

Investment Properties

The other focus is on people who make deduction claims on investment properties and holiday homes. The ATO recently announced in a series of audits, they found errors in 90 per cent of returns reviewed. They will be combing a range of third-party data and information, including from accommodation booking platforms, financial institutions, property transactions and rental bonds to weed out rorters.

Expect them to focus on:

Excessive interest expense claims. This can occur when property owners claim borrowing costs on the family home as well as their rental property.
Incorrect apportionment of rental income and expenses between owners. An example, deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than jointly.
Holiday homes and their actual rental status. Owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use cannot be claimed.
Incorrect claims for newly purchased rental properties. Costs to repair damage and defects at the time of purchase or the costs of renovation afterwards i.e new bathroom cannot be claimed immediately. These costs are deductible instead over a number of years.

Once again, ensure that you keep accurate records including invoices, receipts and bank statements for all property expenditure. Obtain proof that your property was available for rent, such as rental listings.

Other Hotspots for ATO tax deductions and income reporting

Cryptocurrency: Failing to declare profits or losses i.e. Bitcoin.

ATO is collecting bulk records from Australian cryptocurrency designated service providers (DSPs) as part of a data matching program to ensure people trading in cryptocurrency are paying the right amount of tax. Data provided to the ATO will include cryptocurrency purchase and sale information.

Sharing economy: The ATO will be looking at income and expenses to ensure they are correctly reported.

Ride-sourcing – transporting passengers for a fare i.e. Uber drivers
Renting out a room or house for accommodation i.e. Airbnb For example, claiming the full CGT main residence exemption when part of their main residence has been rented out through Airbnb. The law prevents a full CGT exemption where part of a main residence has been used to earn income.
Renting out parking spaces.
Providing skilled services – web or trade i.e Airtasker.
Supplying tools, equipment etc.
Completing errands, deliveries, any ad hoc jobs etc.
Renting out equipment such as sports equipment, tools, musical instruments etc.

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