What's on ATO's hit list this season?

Mark Chapman, H&R Block

As Tax Time looms, millions of Australians will be looking to lodge their tax return in the weeks following 1 July. Unfortunately, many of them will, either inadvertently or otherwise, make errors and thousands will find themselves audited by the ATO.

If you want to avoid the stress of a tax audit (not to mention the financial cost of penalties and interest on unpaid tax), it’s important to get good advice from a tax agent like H&R Block on what you can and can’t claim.

Also read: One person lost $900,000 to scammer posing as ATO

Each year, the ATO devotes compliance resources to particular areas where taxpayers often trip up and this year, we believe the ATO will be focussing in particular on the following:

Work-related expenses

The ATO has noted that over $22 billion in work-related expenses are claimed each year and is undertaking a blitz this year to deal with supposed non-compliance amongst taxpayers who are believed to be rorting the system. Whether people are abusing the system is debateable – the average claim has remained steady for several years – but even so, expect to see more claims challenged by the ATO this year.

Already, letters are going out to taxpayers pointing out that their work-related expenses exceed the norm for people in similar occupations and taxpayers who lodge using the ATO’s myTax system can expect to see excessive claims flagged with a warning before the return is even lodged.

So, when you’re preparing your 2017 return, be sure to check that your claims are accurate and can be substantiated. The ATO are expected to particularly scrutinise the following:

• motor vehicle expenses for travelling between home and work;

• Reasonable travel allowance expense claims

• the work-related proportion of use for computers, phones and other electronic devices.

• Self-education costs

• Work-related clothing and uniforms

Also read: 11 last-minute EOFY tax tips

Rental Property expenses

Around 2 million Australians own an investment property and the ATO believes that many of them are incorrectly claiming deductions they aren’t entitled to. Expect them to focus this year on:

• excessive deductions being claimed for holiday homes (deductions should be limited to the amount of income earned, or to the number of days actually rented out at a commercial rate);

• husbands and wives inappropriately splitting rental income and deductions for jointly owned properties (claims should normally be split 50:50 between the two spouses);

• interest deductions being claimed for the private proportion of loans;

• travel claims for visits to rental properties (from 1 July 2017, such claims are to be disallowed by law but claims can still be made for visits undertaken up to 30 June 2017);

• claiming deductions for a rental property before it is actually rented or available for rent.

The Sharing Economy

If you offer rides through Uber, rent a room through Airbnb, provide trade services through Airtasker or offer goods or services through any other sharing economy platform, the ATO will be watching you.

The ATO has issued detailed guidance recently to those operating in the sharing economy about what they need to do to comply with their income tax and GST obligations, driven in part by the high levels of non-compliance amongst those driving for Uber or renting rooms through Airbnb.

As a result, the ATO will be looking closely at those who participate to make sure that the guidance they issued is being followed and is even gathering data from third-parties such as banks to match with the information on your tax return, with a view to investigating discrepancies.

If you provide services through a sharing economy provider, take care to ensure that your income and expenses are correctly disclosed and that all relevant registrations (such as GST for Uber drivers) have been made.