Rental property income, crypto profits in ATO’s sights this EOFY

CPA Australia has warned Australians of the Australian Taxation Office’s (ATO’s) focus areas for this year’s tax returns, with rental properties, work-related expenses and cryptocurrency profits in the line of fire.

The account body said individuals should steer clear of inflating their work-related tax deductions and should have sufficient evidence to back up any claims, including a record of hours worked from home, evidence of running expenses such as phone and electricity bills and receipts and supporting documents for purchases such as office furniture or technology.

The two methods to calculate work-related expenses remain – the fixed rate method, calculated at a set rate of 67 cents for every hour worked from home, and the actual cost method, which requires evidence.

Similarly, claiming motor vehicle use for work also requires a logbook or diary to record private versus business travel, and claims for fuel, servicing or lease payments also need to have supporting evidence.

CPA Australia said the ATO will be cracking down on rental property owners who claim renovation costs under repairs, as those for “wear and tear or damage from tenants” are tax-deductible. Any work resulting in an improvement to the property or replacement of an asset can only be claimed under a depreciation expense.

“Claiming mortgage interest in full when there were drawdowns for private purposes, as well as declaring net income after expenses from annual rental summary of real estate as gross income, will also be under the microscope.”

The ATO will also be focused on undeclared income, including any funds made from cryptocurrency investments which are subject to capital gains tax (CGT).

“If you acquire a crypto asset as an investment, transactions such as disposal, exchange or swaps are a CGT event, and you may make a capital gain. If you hold the crypto asset as an investment, it will not be exempt from CGT as a personal use asset. You will make a capital gain if the proceeds from the disposal of your crypto asset is more than its cost base.”

“It’s important that everyone pays the right amount of tax and claims what they are entitled to,” CPA Australia Senior Manager Business and Investment Policy, Gavan Ord, said.

“The ATO uses highly sophisticated analytics to scrutinise all claims, including those relating to working from home and motor vehicle expenses, income from rental properties, as well as undeclared income from investments like cryptocurrency.

“Your tax return is your personal responsibility, and you should be as thorough as possible when declaring your income and claiming deductions. Failure to properly declare all of your income, or over-the-top expense claims, may set off alarm bells and your claims could be rejected if you don’t have the evidence.”