ATO hones in “common mistake” areas

The Australian Taxation Office (ATO) has announced it will focus on three key areas it believes to be where taxpayers make the most mistakes when it comes to submitting tax returns.

The ATO’s review of income tax returns found the three main areas were rental property deductions, work-related expenses and capital gains tax, with ATO Assistant Commissioner Tim Loh highlighting the possibility of less and lower refunds.

“We know many people are doing it tough this year. We expect fewer people will receive a refund or may receive smaller refunds than they were expecting, and more may have tax debts to manage,” he said.

Approximately 90 per cent of rental property owners are submitting their tax return incorrectly, leaving rental income out, overclaiming expenses or claiming for improvements to private properties. The ATO will also focus on interest expenses and ensuring owners correctly allocate loan interest expenses where part of the loan may have been used for private reasons.

“We encourage rental property owners and their registered tax agents to take extra care this tax time and review their records before lodging their return,” Loh said.

“You can only claim interest on a loan used to purchase a rental property to earn rental income – don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income.”

The ATO is also reinforcing the changes to the working from home methods individuals can use to claim expenses as a deduction on their tax returns, now only providing the actual cost method or revised fixed rate method which is dependent on eligibility and record-keeping requirements.

“We continue to see shifts in the way Aussies are working, and it’s important to consider whether your claims reflect your working arrangements this year,” Loh said.

“There have also been some changes in how you calculate things like working from home deductions, so don’t be tempted to just copy and paste your prior year’s claims. We know a lot of people are working back in the office more compared to last year.

“Keeping good records will give you flexibility to choose the right method that suits your circumstances and gives you the best deduction this tax time.”

The ATO also said it is focusing on ensuring taxpayers keep records when it comes to capital gains tax (CGT), particularly of the income-producing periods and the part of the property used to produce income.

“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,” Loh said.

“Don’t fall into the trap of thinking we won’t notice if you sell an asset for a gain and don’t declare it.”