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ATO 'hit list' revealed as taxpayer's common claim targeted for $8.7 billion 'tax gap'

Landlords and secret side-hustlers are on the top of the ATO's list as Aussies gear up for another tax return.

The end of the financial year is coming and that means tax time. This means the Australian Taxation Office (ATO) is carefully reviewing the areas where taxpayers may try to pull the wool over their eyes, or accidentally make mistakes in their claims, to boost their returns.

Given we're enduring a cost-of-living crisis, resourceful Australians have thought of new and different ways to make some extra cash. Plus, with some key tax changes coming next financial year, and the loss of benefits in the last, Aussies are being warned to take care when making their claims.

Director of Tax Communications at H&R Block Mark Chapman told Yahoo Finance the areas and revenue streams - like side hustles or investment properties - the ATO will be taking a special look at, with one common claim predicted to have a $8.7 billion "tax gap".

ATO form and cash with an inset of people crossing the street.
Aussies thinking of making a cash grab they can't justify are being warned the ATO are on to them. (Getty)

Work-related expenses

Chapman said the ATO calculated an $8.7 billion shortfall between what Aussies should be paying in tax, and what they really pay when it came to work expenses.

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"The ATO believes that work-related expenses claims are the biggest element in that “tax gap” and have signalled that they’ll be looking closely at these deductions this year," he said.

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The tax expert said these will be the primary focus:

Work-from-home deductions

"The way these could be claimed changed last year, with the introduction of a new 67 cents per hour fixed rate and enhanced substantiation requirements. We expect the ATO to check claims thoroughly, particularly to verify whether taxpayers have a record of all their working from hours over the entire tax year, in the form of timesheets, a diary or copy of work rosters."

'Occupation costs'

"Costs like rent, rates and mortgage interest are under the spotlight as they are not allowable unless you’re actually running a business from home."

Mobile phone and internet cost

"There will be a particular focus on people who are claiming the whole (or a substantial part) of the bill for their personal mobile as work-related and people who are potentially “double dipping” (ie, claiming the 67 cents per hour working from home rate – which includes an element for mobile phone costs – as well as claiming their mobile costs separately)."

Motor vehicle claims

"The ATO are watching for taxpayers who take advantage of the 85 cent per kilometre flat rate available for journeys up to 5,000kms (the ATO is concerned that too many taxpayers are automatically claiming the 5,000km limit regardless of the actual amount of travel)."

'Without receipt' threshold claims

"Incorrectly claiming deductions under the rule that allows taxpayers who have incurred work-related expenses of $300 or less in total to make a claim without receipts. The ATO believes that some taxpayers are claiming this – or an amount just less than $300 – without actually incurring the expenses at all."

Champman also said to be careful of incorrect claims for:

  • Claims for work-related clothing, dry cleaning and laundry expenses

  • Overtime meal claims

  • Union fees and subscriptions

EXPERT'S TOP TIP: Make sure you're confident you understand the claim and have proof - like invoices or diaries - that these were business expenses.

Landlord warning: Property investments and holiday homes

Another main focus for the ATO is people making deductions on property.

"The ATO recently announced that in a series of audits, they found errors in 90% of returns reviewed," Chapman said.

Expect them to focus on the following:

Excessive interest expense claims

"This could be where property owners have tried to claim borrowing costs on the family home as well as their rental property."

Rental income diversion

"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."

Fake holiday homes

"The ATO are looking for '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."

Housing stock
Landlords and those renting houses out as holiday homes are being targeted by the ATO. (Source: Getty)

False claims on new rentals

"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."

EXPERT'S TOP TIP: Keep good records.

"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," Chapman said.

Secret side-hustles: From Uber and Airtasker to Airbnb or Stayz

Chapman said the ATO is "convinced" many Australians tapping into the sharing economy are not properly declaring their profits and gains.

"If you obtain work through Uber, Airtasker or any of the many sharing economy platforms which allow you to rent out assets or your personal services, take heed," he said.

"The ATO is now receiving reports from many platforms (including Uber), which it can use to highlight data mismatches."

He warned those renting properties, or even part of one, through platforms like Airbnb or Stayz, the ATO are on to you too.

"The ATO has numerous third-party sources of data which it can use to identify if you are receiving rent and they are on the lookout for mismatches with the tax return data that you report," Chapman said.

Mark Chapman is a tax expert and he's revealed what you should be doing now to ensure you get the biggest return possible at tax time.
Mark Chapman is a tax expert and he's revealed what the ATO are looking out for. (Belinda Grant-Geary)

Cryptocurrency

Made some extra money through Bitcoin? Don't think the booming market of digital currency is exempt from tax.

Chapman said the ATO estimates between 500,000 and one million Aussies have invested in crypto, and warned the taxation body is provided data on purchases and sales that can identify taxpayers who fail to disclose their income.

"Increasing numbers of taxpayers are jumping on the bandwagon and the ATO believes that some of them are failing to declare the profits (and in some cases the losses) they are making on their investments," Chapman said.

"Remember, investing in cryptocurrencies can give rise to capital gains tax (CGT) on profits. Traders can be taxed on their profits as business income.

"To help them in their search, the ATO is collecting bulk records from Australian cryptocurrency designated service providers (DSPs) as part of a data matching program to ensure people trading in cryptocurrency are paying the right amount of tax."

Shares

Investors will normally have to pay CGT on profits, which typically arise when you sell shares. But Chapman warned they can also happen if you give them away, or stop being an Australian resident.

"CGT taxes any increase in value from the time the share was acquired," he said.

"Sometimes the proceeds and cost base of the share are not what was actually paid or received, but rather, the market value of the asset. This is typically to prevent people from minimising their tax by, say, selling the share to a relative for a low price."

He said if you are a regular, you could be seen as a share trader, rather than an investor.

"If that’s the case, the tax you pay could look very different. A share trader is someone who buys and sells shares purely for short-term profits," he said.

These are the signs Chapman said would indicate you could be seen as a trader by the ATO:

  • Lots of transactions

  • A clear profit-making intent

  • You run your activities in a business-like manner (eg, a large investment of capital, a well-developed business plan, extensive research and properly maintained books and records)

  • Someone who buys and sells shares as part of a business will treat those shares as trading stock, and gains or losses on them will be taxed as ordinary income (effectively as business profits) rather than capital gains.

Chapman said the ATO takes particular interest in this area as there's "ample opportunity to get the tax treatment wrong or mischaracterise income in a way that gives you a tax advantage".

"Make sure that you have the necessary information about all your share sales so you can report this to the ATO," he said.

"You’ll need details of the original purchase cost, the sales proceeds, the dates of acquisition and sale and any associated costs (eg, brokerage fees)."