ATO Sets Three Key Focus Areas for Tax Time 2023

The Australian Taxation Office (ATO) has today announced its 3 key focus areas for the upcoming tax year:

• rental property deductions
• work-related expenses
• capital gains tax.

Rental property deductions

The ATO’s review of income tax returns show 9 in 10 rental property owners are getting their return wrong, and often sees rental income being left out, or mistakes being made with property related deductions – like overclaiming expenses or claiming for improvements to private properties.

The ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was re-financed with some private purpose).

You can only claim interest on a loan used to purchase a rental property to earn rental income, if your loan also includes a private expense, such as for a new vehicle or a trip to overseas (i.e. a redraw on the loan), you can only claim an interest deduction for the portion relating to producing your rental income.

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.

For more information visit ato.gov.au/rental

Work-related expenses

Are your claims reflect your working arrangements this year?

This year, the ATO is particularly focused on ensuring taxpayers understand the changes to the working from home methods and are able to back up their claims.

To claim your working from home expenses as a deduction, you can use the actual cost, or the revised fixed rate method, so long as you meet the eligibility and record-keeping requirements.

For more information visit ato.gov.au/home

Capital gains tax

Capital gains tax (CGT) comes into effect when you dispose of assets such as shares, crypto, managed investments or properties. To ensure 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 Stayz, or running a business from home, then CGT may apply. CGT also applies where the property is over 5 acres in size, regardless of its use.

The ATO is reminding taxpayers of the importance of keeping records of the income-producing period and the portion of the property used to produce income to calculate your capital gain. If you used your property to earn income, and qualify for an exemption, make the election in your tax return. Again, the ATO will be using sophisticated data-matching to compare records to cypto wallets, share registries, Titles Offices, and AirBNB records.

For more information visit ato.gov.au/CGT

So what can you do

1. Keep accurate records and details. You are often required to keep much more detail than originally thought. The ATO have very good guides online, such as ‘Records you need to keep’ and ‘Record keeping for business’
2. Using an expert like Holmans minimises your chances of inadvertently falling foul of the nuances in these complicated areas. Don’t rely on BBQ chats on what is claimable, what is not, and/or how the tax is calculated.
3. You should also consider Audit Insurance requirements where one of the above is included in your tax return. The Audit Insurance won’t change the tax outcome, or cover the tax itself, but it will help cover the tax agent fees associated with dealing with the ATO’s queries/questionnaires. If you are randomly selected for review, or their data matching indicates an area worth double checking, the questionnaires issued are often extensive and use very specific ATO terminology. Our experience is that most tax payers prefer an expert in their corner during the review process.

Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.