ATO Tax Hotspots for 2024

During tax season, the ATO pays close attention to specific areas where taxpayers are inclined, either unintentionally or intentionally, to make errors. So, what's under their radar this year? They're focusing on record-keeping, work-related expenses, rental property income and deductions, sharing economy earnings, and gains from crypto assets, property, and shares. Let's delve into each area to understand why they're closely watched.

Work-related expenses

The ATO recently reported a significant $8.7 billion gap between anticipated and actual tax payments by individuals. Work related expense claims constitute a major portion of this "tax gap," according to the ATO, prompting them to scrutinize these deductions closely this year. Specific areas of focus include:

1. Deductions for expenses related to working from home, which underwent changes last year with the introduction of a fixed rate of 67 cents per hour and stricter substantiation requirements. The ATO intends to thoroughly examine these claims, verifying whether taxpayers have documented all their work hours throughout the tax year, such as through timesheets, diaries, or work rosters.
2. Similarly, deductions for "occupation" costs like rent, rates, and mortgage interest related to working from home are receiving attention, as they are only allowable if individuals are genuinely operating a business from their residence.
3. Attention is also directed towards mobile phone and internet costs, particularly concerning individuals who claim a significant portion of their personal mobile expenses as work-related. The ATO is wary of potential "double-dipping," where taxpayers claim both the 67 cents per hour working from home rate (inclusive of mobile phone costs) and separately claim their mobile expenses.
4. Other areas of focus include claims for work-related clothing, dry cleaning, and laundry expenses, overtime meal claims, union fees and subscriptions, and motor vehicle claims, especially where taxpayers exploit the 85 cent per kilometer flat rate for journeys up to 5,000 kilometers. The ATO is concerned that many taxpayers automatically claim the 5,000 km limit without considering the actual travel distance.
5. Incorrectly claiming deductions under the rule allowing taxpayers with work-related expenses totaling $300 or less to claim without receipts is another target area. The ATO suspects that some individuals may be claiming this or slightly less than $300 without incurring the expenses.

Before making any claim, it is important you ensure a clear understanding of your eligible deductions and to retain necessary proof (such as invoices, receipts, diaries) demonstrating the actual expenditure incurred and its relevance to work or business.

Property

This year, another significant area of focus is on individuals who claim deductions related to investment properties and vacation homes. The ATO recently disclosed that in a sequence of audits, they discovered errors in 90% of the returns assessed. Consequently, expect increased scrutiny in the following areas:

1. Excessive claims for interest expenses, where property owners attempt to include borrowing costs for both the family home and their rental property.
2. Incorrect allocation of rental income and expenses among owners, particularly cases where deductions for jointly owned properties are claimed solely by the owner with the higher taxable income.
3. Examination of holiday homes that are not genuinely available for rent. Rental property owners should only claim during periods when the property is rented out or genuinely available for rent, excluding periods of personal use.
4. Addressing incorrect claims for newly acquired rental properties. Expenses for repairing damage or defects existing at the time of purchase, as well as renovation costs, cannot be immediately claimed but must be deducted over several years.It is important for property owners to maintain meticulous records, emphasising the importance of documentation in substantiating claims. 

Remember, if you cannot provide evidence, you cannot make the claim, so it's crucial to retain invoices, receipts, bank statements, and rental listings for all property-related expenses.

Sharing economy

The ATO suspects many in the sharing economy aren't accurately declaring their earnings. They're keeping an eye on platforms like Uber and Airbnb to identify discrepancies in reported income.

The ATO is currently receiving notifications from various platforms (including Uber), enabling them to detect discrepancies in data.

Like wise, if you lease out a property (or a portion of it) through Airbnb and Stayz, you may attract the ATO's attention. The ATO utilizes multiple third-party data sources to verify rental income and scrutinizes tax return data for inconsistencies.

Cryptocurrency

With the popularity of cryptocurrencies like Bitcoin, the ATO wants to ensure people are declaring their profits. They're collecting data from cryptocurrency service providers to match against reported income.

Information submitted to the ATO comprises details of cryptocurrency purchases and sales, enabling the identification of taxpayers who inaccurately report their income. The ATO approximates that the number of Australians investing in crypto-assets ranges from 500,000 to one million.

Shares

When shares are sold, assuming you are an investor and not a trader, you are typically liable to pay Capital Gains Tax (CGT) on any profits.

CGT usually applies upon the sale of shares, but it can also occur if they are gifted or if you cease to be an Australian resident. CGT taxes the increase in value from the time the shares were acquired.

Occasionally, the proceeds and cost base of the shares may differ from the actual amount paid or received, reflecting the market value of the asset. This is often implemented to prevent individuals from reducing their tax liability by selling shares to a relative at a low price.

If you frequently engage in buying and selling shares, you may be categorized as a share trader rather than an investor. In such cases, your tax obligations may differ significantly.

A share trader is someone who trades shares for short-term profits, characterized by numerous transactions, a clear profit-making intent, and business-like conduct (such as substantial capital investment, a detailed business plan, thorough research, and well-maintained records).

Individuals who trade shares as part of a business treat them as trading stock, with gains or losses taxed as ordinary income rather than capital gains.

As illustrated above, there are numerous opportunities to misinterpret tax treatment or income characterization, prompting the ATO's interest in this area.

Ensure you possess all necessary information regarding your share transactions to accurately report them to the ATO. This includes details of the original purchase cost, sales proceeds, acquisition and sale dates, and any associated expenses (such as brokerage fees).

I hope you enjoyed reading this article. If you would like my team and I to help you, legally minimise your tax please contact us for a free no obligation meeting.  - Chris Tolevsky