The Australian Taxation Office (ATO) has announced its 3 key focus areas for this Tax Time:
- Rental property deductions
- Work-related expenses
- Capital gains tax.
ATO Assistant Commissioner Tim Loh said the ATO is continuing to prioritise areas where they often see mistakes made.
Rental property deductions
The ATO’s review of income tax returns shows that 9 in 10 rental property owners are getting their returns wrong. They often see rental income being left out, or mistakes being made with property-related deductions – like overclaiming expenses or claiming for improvements to private properties.
The ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses, where part of the loan was used for private purposes (or the loan was re-financed with some private purpose).
Interest can only be claimed as a deduction for the portion relating to producing rental income.
The ATO has sophisticated data matching capabilities which include rental property-related data and has recently implemented a new residential investment property loans data matching program.
The particular focus here is on working from home expenses.
As the ATO revised the method of working from home deductions, which applied from 1 July 2022 it is expected that many taxpayers may incorrectly continue to use the prior year’s method of calculating the claim.
The compliance requirements of the new method are much more stringent.
In our blog earlier this year, we covered the change in the ATO’s approach to claiming costs when working from home. Read the blog here.
The ATO has released a brochure, which provides further details on how this will work. Here’s a link to the brochure.
Capital gains tax
The ATO has reminded taxpayers that your main residence is exempt from Capital gains tax (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.
Therefore, it is important to keep records of the income-producing period and the portion of the property used to produce income to calculate your capital gain.
The ATO Assistant Commissioner Tim 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’.
If you have any questions in relation to any of these focus areas, please get in touch with our office or book a meeting through Calendly here.