Hundreds of thousands of Aussies are expected to receive “please explain” letters this year amid a dramatic escalation in the ATO’s crackdown on the $8.7 billion “tax gap”.
Work-related claims like dry cleaning and car expenses will once again be the most closely scrutinised, along with investment property deductions and earnings from cryptocurrencies and sharing economy platforms like Uber.
The ATO is discovering undeclared income by cross-checking data provided from third parties. They have set benchmarks and if expenses are outside the “norm” people will get a letter inviting them to “think again”.
The most important thing to remember is that if you can substantiate your claim with a receipt, invoice or bank statement that proves you incurred the expense.
More than 2.2 million Australians claimed over $47 billion in deductions in the 2017-18 financial year, led by work-related expenses and rental claims.
Deliberate attempts to over-claim can attract penalties of up to 75% of the claim. The ATO handed out penalties totalling $1.3 million after auditing more than 1500 taxpayers rental claims in the 2017-18.
Work-related Expenses To Watch
- Work-related clothing, dry cleaning and laundry
- Deductions for home office
- Mobile phone and internet costs, with a focus on people claiming whole or substantial parts of their personal mobile bill as work-related
- Motor vehicle claims where people take advantage of the .68 cent flat rate available for journeys up to 5000km’s
- Claiming $300 work-related expenses (no receipt necessary) without having incurred the expenses at all
- The ATO has announced it will be paying close attention to excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property.
- It will also be looking at the incorrect apportionment of rental income and 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.
- It will be looking at 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.
- It will be keeping a close eye on incorrect claims for newly purchased rental properties. The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years.
Share Economy Shake-Up
- The ATO will also be looking closely at those working in the shared economy to ensure income and expenses are correctly reported.
- Examples include transporting passengers for a fare (Uber), renting out parking spaces, providing skilled services such as web or trade services (Airtasker)
- Renting out a room or house for accommodation is a big one. Airbnb hosts are the obvious example. The ATO is believed to be particularly concerned about taxpayers claiming the full Capital Gains Tax (CGT) main residence exemption when part of their main residence has been rented out through Airbnb — the law prevents a full CGT exemption where part of a main residence has been used to earn income.
- Cryptocurrencies are owned by between 500,000 to 1 million Australians, with the ATO believing some investors are failing to declare profits
- In Australia, cryptocurrencies are treated as an asset, meaning every time a cryptocurrency is bought and sold there is potential capital gains tax liability.
- The ATO has begun collecting “bulk records” from local cryptocurrency exchanges to feed into its data-matching technology used to track down tax cheats.
- Following the data matching, people may be contacted by the ATO and given the opportunity to verify the information collected before any compliance action is undertaken.
- They will be given at least 28 days to “clarify information”.