Last year saw a significant number of tax returns riddled with errors, prompting the Australian Taxation Office (ATO) to intensify its scrutiny on three primary fronts. Come tax season, the ATO will prioritise examinations of work-related tax deductions and rental property claims. Find out who the ATO is targeting this year.

With less than two months remaining until the close of the financial year, the ATO will also concentrate on individuals who neglect to report supplementary income streams, such as bank interest and share dividends. Leveraging data matching and analytics technology, the ATO aims to streamline its efforts in identifying tax discrepancies, a tool that proved instrumental in rectifying nearly half a million inaccurate tax returns last year.

As ‘tax time’ approaches, the Australian Taxation Office (ATO) has announced it will be taking a close look at 3 common errors being made by taxpayers:

  • Incorrectly claiming work-related expenses
  • Inflating claims for rental properties
  • Failing to include all income when lodging

ATO Assistant Commissioner Rob Thomson said the ATO is focused on supporting taxpayers to get their lodgement right the first time. ‘These are the areas that people are most likely to get wrong, and while these mistakes are often genuine, sometimes they are deliberate. Take the time to get your return right.’

Work-related expenses

In 2023 more than 8 million people claimed a work-related deduction, and around half of those claimed a deduction related to working from home. Last year, the ATO revised the fixed rate method of calculating a working from home deduction to broaden what is included, increase the rate, and adjust the records you need to keep.

These changes are now in full effect this financial year, meaning you must have comprehensive records to substantiate your claims as you would for any other deduction.

To use this method, you need records that show the actual number of hours you worked from home (like a calendar, diary or spreadsheet), and the additional running costs you incurred to claim a deduction (like a copy of your electricity or internet bill).

‘Deductions for working from home expenses can be calculated using the actual cost or the fixed rate method, and keeping good records gives you the flexibility to use the method that works for you, and claim the expenses you are entitled to.’

‘Copying and pasting your working from home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’. Your deductions will be disallowed if you’re not eligible or you don’t keep the right records.’ Mr Thomson said.

Remember, there are 3 golden rules for claiming a deduction for any work-related expense:

  1. you must have spent the money yourself and weren’t reimbursed,
  2. the expense must directly relate to earning your income, and
  3. you must have a record (usually a receipt) to prove it.

Most mistakes have been made with WFH calculations. There were shortcut methods introduced during the Covid period, however taxpayers may be unaware that these have been removed and, as such, they may be inadvertently claiming deductions to which they are not entitled and the ATO will be seeking to claw back revenue as a result of this.

Rental properties

Property investors remain a focal point for the ATO, given that their data indicates nine out of ten rental property owners make errors on their tax returns. Complexities within the law contribute to misunderstandings, coupled with challenges in record-keeping and some individuals deliberately inflate their claims.

Landlords have been making mistakes when it comes to repairs and maintenance deductions on rental properties. The ATO will focus on claims that may have been inflated to offset increases in rental income to get a greater tax benefit.

Performing general repairs and maintenance on your rental property can be claimed as an immediate deduction. However, expenses which are capital in nature (like initial repairs on a newly purchased property and any improvements during the time you hold the property) are not deductible as repairs or maintenance.

  • You can claim an immediate deduction for general repairs like replacing damaged carpet or a broken window. But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works.’

As reporting rental income and deductions can be complex, many individual rental owners choose to use a registered tax agent to help them prepare their income tax returns.

Utilising technology, the ATO identifies inaccurate rental property claims by analysing data from various sources, including lenders, property managers, and state revenue offices.

Rental property costs were significant and resulted in large deductions and more potential revenue losses for the ATO. For example, items such as council rates, insurance and land tax have increased significantly over the past 12 months.

Get it right – wait to lodge

The ATO is also warning against rushing to lodge your tax return on 1 July.

If you have received income from multiple sources, you need to wait until this is pre-filled in your tax return before lodging.

One of the most common errors that occurs at lodgement time  in July is where individuals overlook reporting interest from banks, dividend income, payments from other government agencies, and contributions from private health insurers “For most individuals, this information will be automatically prefilled in their tax return by the end of July. This streamlined process not only saves time but also increases accuracy in your tax return.”

“Lodging in early July doubles the likelihood of your tax return being flagged as incorrect by the ATO,” Thomson cautioned.

The best approach to guaranteeing accuracy is to wait a short while before lodging, rather than rushing to file and risking errors. ‘You can check if your employer has marked your income statement as ‘tax ready’ as well as if your pre-fill is available in myTax before you lodge. That way, an amendment doesn’t need to be made later, which could result in unnecessary delays,’ Mr Thomson said.

Assistant Commissioner Rob Thomson underscored that these three focal points represent pivotal areas where errors are most prevalent, stemming from both inadvertent mistakes and occasional intentional misrepresentations. Thomson revealed that over eight million individuals claimed work-related deductions last year, with approximately half of these deductions attributed to expenses incurred while working from home (WFH).

Source: ATO

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