What to expect from the ATO this year: more letters and more audits.
In case you missed the cues: the ATO is in crackdown mode. Its pre-end of financial year communication caused a surge in people filing their tax returns early this year, prompting the ATO to subsequently warn people to ensure they ‘get their returns’ right rather than rushing them.
By July 14, according to reports, 1.3 million Aussies had already filed their 2019 tax returns, up by 600,000 filed at the same time last year — a result of Prime Minister Scott Morrison’s tax cuts as well as strict warnings from the ATO that late returns would attract penalties.
Over the past couple of years, the ATO has implemented a number of measures for small business to ensure that payments are made on time and that returns are accurate.
There are significant penalties for non-compliance.
But across the board, from business to individuals, the prediction this year is that there will be a significant increase in the number of audits, too.
“The ATO has explicitly said that it wants to close the $8.7 billion ‘tax gap’,” says Paul Rattray of Paramatta-based tax accountants, ATB Partners.
“And it has been given additional government resources to see this through. This will mean that hundreds of small businesses and individuals could potentially receive letters regarding any kind of discrepancy.
We’ve looked over a list of things the ATO has mooted as being in the spotlight. Some of them seem inconsequential, but the message is pretty clear – everything is going to be looked at in detail. And the ATO has already indicated that it’s likely to significantly increase the number of audits compared to those conducted in previous years.”
Work-related claims for things like dry cleaning and car expenses are likely to come under scrutiny, along with investment property deductions and earnings from cryptocurrencies and sharing economy platforms, such as Airbnb and Uber.
“The ATO can now cross-match data with third-parties; they’ve even been known to use social media. This gives it a lot more information for checking returns and the legitimacy of claims. People need to take care.
Once upon a time, if you were unsure about a deduction you could get away with a sort of ‘make it up and then apologise later’ philosophy. That doesn’t work anymore. The ATO was once a lot more flexible than it is now,” explains Paul.
Expenses expected to be in the spotlight this year:
- Home office deductions, particularly those related to rent, rates and mortgage interest, which are not allowable unless you’re actually running a business from home.
- Claims for work-related clothing, dry cleaning and laundry expenses, particularly those taxpayers who take advantage of the exemption from keeping receipts for people who spend less than $150 on laundry expenses.
- Mobile phone and internet cost claims.
- Motor vehicle claims where taxpayers take advantage of the 68-cent-per-kilometre flat rate available for journeys up to 5000km.
- The rule that enables claims of work-related expenses up to $300 without the need to provide receipts.
- Excessive interest expense claims, for example, where property owners have tried to claim borrowing costs on the family home as well as their rental property.
- Apportion of rental income versus 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.
- Holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed.
- Incorrect claims for newly purchased rental properties in relation to repair damage and defects existing at the time of purchase. Costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years. Expect to see the ATO checking such claims and pushing back against claims that don’t stack up.
- Those working in the shared economy – to ensure income and expenses are correctly reported, for example, transporting passengers for a fare (Uber), renting out parking spaces, providing services via Airtasker, supplying equipment or tools, completing odd jobs, errands or deliveries, or renting out equipment such as tools, musical instruments or sports equipment.
- Airbnb hosts, particularly with regard to Capital Gains Tax which must be applied when a part of the main residence has been rented out for an income.
“The advice is plan for tax, keep all records and receipts and make sure you can substantiate all claims,” says Paul.
“Now’s also a good time to consider getting a tax agent or an accountant if you don’t have one – tax rules have changed and tweaked over time and the ATO has indicated that a new era is here and there is limited tolerance for error.”
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