The new financial year is around the corner and there are certain things the Australian Taxation Office (ATO) will be scrutinising in your tax return forms.
According to the ATO there are a number of red flags, particularly for crypto investors, contractors and first time lodgers amongst many others.
Here is complete a list of the five key things the ATO is scrutinising this year.
First time lodgers
The ATO has guided first-time lodgers on some simple things they can do right now to make lodgment quick, secure and right come tax time.
“Tax may seem daunting, but it doesn’t need to be,” ATO Assistant Commissioner Tim Loh said.
“The best advice for first-time lodgers is to be prepared – whether you choose to use the services of a registered tax agent or lodge your own return.”
Loh said a common mistake the ATO sees with first time lodgers is essential information being left out of their return, such as income from dividends or your private health insurance information.
This can slow down your return, he explained.
Whether you lodge yourself or with a registered tax agent, by late July any information from employer, bank, health fund, government agencies and more, will automatically be added to your tax return.
Loh said if you want to lodge earlier, before you have all that information ready, you must take extra care to add all your income.
“Another mistake we see that can set you back is forgetting to keep receipts for any deductions you want to claim,” he said.
The most common deductions are expenses directly related to earning your income, such as steel capped boots for construction workers.
The ATO also expressed concern that many taxpayers believe their cryptocurrency gains are tax free or only taxable when the holdings are cashed back into Australian dollars.
"This year, we will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns,” Loh said.
“We also expect to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.”
Last year, the ATO had to directly contact around 100,000 taxpayers who had traded in cryptocurrency and prompt 140,000 taxpayers at lodgment.
This is because, Loh explained, gains from cryptocurrency are similar to gains from other investments, such as shares. Generally, as an investor, if you buy, sell, swap for fiat currency, or exchange one cryptocurrency for another, it will be subject to capital gains tax (CGT) and must be reported.
CGT also applies to the disposal of non-fungible tokens (NFTs).
“We are alarmed that some taxpayers think that the anonymity of cryptocurrencies provides a licence to ignore their tax obligations,” Loh said.
“While it appears that cryptocurrency operates in an anonymous digital world, we closely track 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 matches data from cryptocurrency designated service providers to individuals’ tax returns, helping us ensure investors are paying the right amount of tax.
“We know cryptocurrencies can be complicated. That’s why our focus is on helping people get it right,” Loh said.
“The best tip to nail your cryptocurrency gains and losses is to keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it’s just their wallet address.”
Working from home expenses
The ATO has established the temporary shortcut method available to those claiming working from home deductions.
The temporary shortcut method was created at the height of the pandemic last year to respond to the sudden influx of makeshift home workspaces.
The working from home shortcut method allows claims at the all-inclusive rate of 80 cents per hour, rather than needing to do complex calculations for specific items.
“The shortcut method is straight forward; just multiply the hours worked at home by 80 cents,” Loh said.
“The only proof you need is a record of the number of hours you’ve worked from home, such as a timesheet.”
If you chose to claim your working from home expenses, the ATO has warned there are four “no-go expenses” to watch out for.
You cannot and should not make a claim for:
Personal expenses like coffee, tea and toilet paper. While they might normally be supplied by your employer, they still aren’t directly related to earning your income.
Expenses related to your child’s education, such as online learning courses or laptops.
Large expenses up-front. Any asset that costs over $300 (either in total or per item), such as a computer, can’t be claimed immediately. Instead, these claims should be spread out over a number of years
Employees generally can’t claim occupancy expenses such as rent, mortgage interest, property insurance, land taxes and rates. Working from home does not mean your home is a place of business for tax purposes. If you claim occupancy expenses, you may have to pay capital gains tax when you sell your home, even if it is your main residence.
‘Copy and paste’ returns
The ATO also has its sights set on work-related expenses like car and travel claims that are predicted to decrease in this year’s tax returns.
Overall, around 8.5 million Australians claimed nearly $19.4 billion in work-related expenses in their 2020 tax returns.
However, with many Aussies moving to work from home arrangements the ATO is keeping its eyes peeled for those who claim to be working from home but still claim deductions for travel and other work related expenses.
Loh noted that COVID-19 has changed people's work habits, so the ATO expects their work-related expenses will reflect this.
“We know many people started working from home during COVID-19, so a jump in these claims is expected,” Loh said.
“But, if you are working at home, we would not expect to see claims for travelling between worksites, laundering uniforms or business trips.”
The ATO revealed it is using data from its Taxable Payments Reporting System (TPRS) to ensure that more than payments to contractors have been properly declared.
Businesses that pay contractors in the courier, cleaning, building and construction, road freight, information technology, security, investigation, or surveillance services industries are required to notify the ATO of payments made to contractors annually.
ATO Assistant Commissioner Peter Holt said because of TPRS, the ATO now has a clearer view than ever before of payments made to contractors in these industries.
The ATO began this practice in the 2019-20 tax year and using the TPRS data has been able to preemptively contact contractors to ensure they don’t forget to declare their income,
“Where we discover a discrepancy, our first step is always to contact the taxpayer or their tax professional to check they have fully reported these payments in their tax return,” Holt said.
The ATO estimates that small businesses operating in the shadow economy costs the community more than $6.7 billion in unpaid tax every year.
“Honest courier drivers do the right thing: they pay their rego, pay their road tolls, stick to the speed limit, and pay their taxes,” Holt said.
“It’s not fair that some dishonest drivers get to skip the ‘toll booth’ and get an advantage over their honest competitors.”