Australia, it’s almost time to lodge your tax return for 2021.
Correctly crunching the numbers isn’t easy at the best of times. It’s only been made more confusing by coronavirus complications. The Australian Tax Office is expecting you to submit your income tax return before the deadline so that your affairs for this COVID-crazy financial year are in order.
We’ve put together the ultimate guide on how to get the best bang for your buck and make sure you’re in line with your ATO obligations.
ATO tax return focus areas
The ATO has laid bare the targets in its sights for people submitting their 2021 tax returns.
It will be cracking down on some of the following:
- Work-related expenses (including double-dipping when claiming deductions and work-related expenses that AREN’T related to work), and
- Rental properties, and
- Capital gains from cryptocurrency, property and shares.
- Work-related expenses
Generally speaking, there are three rules for Australians looking to claim work-related expenses on their tax return:
- You must have spent the money, and not been reimbursed for the expense,
- The expense must be directly related to you earning your income (i.e., it cannot be a private expense), and
- You must have a record of purchase (i.e., a receipt).
The ATO is expecting a large volume of working from home expenses to be claimed – therefore, be careful. Mobile phones and internet costs will be a big focus in the work-from-home era.
The 2020-21 financial year forced millions of Australians to begin working from home almost overnight amid an unpredictable coronavirus crisis. A temporary shortcut method has been made available for those who are claiming working from home expenses.
Individuals will need to provide a record of the hours worked from home, such as a timesheet.
The temporary shortcut method for claiming working from home expenses during COVID-19 is available for the full 2020-21 financial year.
This allows people with working from home expenses to claim an all-inclusive rate of 80 cents per hour for every hour people work from home, rather than needing to separately calculate costs for specific expenses and apportioning the work and private component.
Double-dipping when claiming deductions is also a recurrent focus of the ATO.
People may either accidentally or deliberately be double dipping by claiming their working from home expenses using the all-inclusive temporary shortcut method while claiming for specific items such as laptops or desks.
It’s important to remember that if someone is claiming under the temporary shortcut method, they cannot claim a separate additional deduction for any expenses they incur as a result of working from home. The ATO has cautioned taxpayers against claiming work-related expenses on items that are not actually work-related. A work-related expense should be needed to perform your job as an employee.
For example, even if steel-capped boots or other items of protective clothing are part of an unofficial dress code, they are only deductible if there is a specific safety requirement.
Some expenses may be used for work and for private use and you must only claim a deduction for the work-related portion of the expense. For example, if you have a headphones that you use for private purposes for half of the time you can only deduct 50 per cent of the cost.
Travel Related Expense Claims
The ATO has cautioned taxpayers against claiming work-related expenses on items that are not actually work-related, and said purchases like headphones could be confusing for Australians. The cost of travelling from home to work or work to home is not generally deductible for most people.
It is considered private travel and not a claimable expense. If a taxpayer is working from home due to COVID-19, but needs to travel to their regular office sometimes, they cannot claim the cost of travel from home to work as these are still private expenses.
Even though they are working from home, their home is still a private residence – it is not a ‘place of business’. The cost of travelling from home to work or work to home is not generally deductible for most people.
Taxpayers who think they are entitled to a ‘standard deduction’ of $300 on expenses are also in for a shock. The ATO has confirmed that there is not a standard deduction of $300.
While it is true that individuals don’t need receipts for claims up to $300, they must have actually spent the money, be directly related to earning their income and be able to show us how they worked out the deduction.
Similarly, clothing and laundry claims under $150 do not require extensive records, but the ATO will be looking very closely if this year’s claims are the same as in previous years.
The tax office is warning it will be putting expense claims for working from home under scrutiny.
Property expense claims
Similarly, to last year, the ATO is set to focus on investment properties and holiday homes.
It claims that around 8 per cent of Australians own an investment property and believes that discrepancies in rental property claims is a major component in an $8.7 billion shortfall between what tax individuals are expected to pay and what they actually pay.
Excessive expense claims, where property owners try to claim borrowing costs on their family home in addition to their rental property, will be under the microscope.
So too will be people incorrectly appointing rental income and expenses between owners.
The ATO has indicated it will be shining a spotlight on:
- Owners claiming deductions for costs incurred in travelling to their property. Unless a taxpayer is in the business of letting rental properties, travel costs cannot be claimed.
- Taxpayers that take out a loan to purchase a rental property can claim interest (or a portion of the interest) as a tax deduction. However, directing some of the loan money to personal use, such as paying for living expenses, buying a boat, or going on a holiday is not deductible.
- Taxpayers claiming capital works as a lump sum rather than spreading the cost over a number of years. Others claim the initial work needed to get a property ready for rent immediately instead of spreading the cost over a number of years.
- Repairs or maintenance to restore something that’s broken, damaged or deteriorating are deductible immediately. Improvements or renovations are categorised as capital works and are deductible over a number of years.
- Initial repairs for damage that existed when the property was purchased can’t be claimed as an immediate deduction but may be claimed over a number of years as a capital works deduction.
- People incorrectly apportioning expenses for short-term rental properties by failing to account for periods when they or their family and friends use the property or times when they choose to keep the property vacant. Properties need to be rented out or be genuinely available for rent to claim a deduction.
- Forgetting to include all rental income, especially from sharing economy platforms. The ATO are matching data received from these providers to information in tax returns and will be following up discrepancies.
- Other issues include claiming on holiday homes that aren’t genuinely for rent and incorrectly claiming on newly purchased properties.
The golden rule is if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.
Shares, dividends, and cryptocurrency
Cryptocurrency traders who think they’re living in a faceless high-tech world will soon get a letter from the tax office. Australian Taxation Office data has captured a dramatic increase in trading since the beginning of 2020.
More than 600,000 taxpayers are now dabbling in crypto-assets, the ATO has found.Taxpayers with crypto will be slugged with penalties and audits if gains are not declared at tax time. The ATO has flagged a crackdown on cryptocurrency traders during the upcoming tax period. While it appears cryptocurrency operates in an anonymous digital world, the ATO are closely tracking where it interacts with the real world through data from banks, financial institutions, and cryptocurrency online exchanges to follow the money back to the taxpayer.
The ATO then matches data to tax returns to make sure investors are paying the right amount of tax. The tax office will be writing to about 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns.
The ATO also expects to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.
In Summary
The ATO will be cracking down in 2021 tax returns on work-related expenses, rental properties, and capital gains from cryptocurrency, property, and shares. According to the ATO, many Australians make mistakes early in July when inaccurately declaring money they made from investments.
The ATO often sees lots of mistakes in early July as people rush to get their tax returns done and forget to include income from banks, dividends from shares, sharing economy platforms and cryptocurrency exchange.
If you want to lodge earlier, you must take care to manually add all your income. Please contact our office to discuss how these issues may impact on your EOFY tax return
We encourage all our clients and readers of The Pulse, to prepare your receipts and expense documentation as soon as you can and call our office to book in for your tax return discussion and preparation.
General Advice Warning
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