Rental deductions and cryptocurrency data-matching are joining work-related expenses on the Australian Taxation Office’s list of priorities as Australians prepare to lodge their tax returns.

By Zilla Efrat

While it’s still keeping a firm eye on work-related expenses, the Australian Taxation Office’s (ATO) top priority this tax year is rental deductions, ATO assistant commissioner Karen Foat reveals.

“We expect to double the number of in-depth audits we conduct to 4500 this year, with a specific focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing.”

Paul Drum FCPA, CPA Australia’s head of external affairs, adds that cryptocurrency data-matching has begun and the ATO is encouraging taxpayers to ensure they correctly report their gains and losses.

“The ATO has also flagged foreign income and reporting payments to trust beneficiaries as areas of interest this tax season,” he says.

Enhanced scrutiny of rental deductions

In 2017, more than 2.2 million Australians claimed over A$47 billion in rental deductions. Yet, an ATO examination of a random sample of returns with rental deductions found that nine out of 10 contained an error.

Foat warns that the ATO will be looking very closely at these deductions this year and that its detection methods are becoming more advanced.

“We use a range of third-party information including data from financial institutions, property transactions and rental bonds from all states and territories in combination with sophisticated analytics to scrutinise every tax return.”

In August 2018, the ATO embarked on an extensive program to match data provided by online rental platforms and their financial institutions against ATO records to identify taxpayers not meeting their obligations when renting out a property or part of a property on a short-term basis.

The issues flagged by the ATO’s data analytics will be referred to its investigators, says Foat.

Work-related expenses still on the radar

When it comes to work-related expense claims, she says the ATO’s focus has been on prevention. It has issued enhanced guidance and advice, and has been using better data and technology to help taxpayers get their claims right.

It appears taxpayers are starting to take note. The average work-related expense claim has decreased for the first time in almost 25 years.

Foat says, however, that the ATO continues to see errors. “Our concerns centre around taxpayers claiming deductions where they have not spent the money [for example, standard deductions], not apportioning expenses where there is private use, and not keeping records to support claims.”

She advises tax agents to ensure their clients are aware of the ATO’s three golden rules for claiming work-related expenses: you must have spent the money yourself and not have been reimbursed; it must be directly related to earning your income; and you must have a record to substantiate the claim.

Even where record-keeping exceptions apply, taxpayers must still be able to show how they calculated the claim, she says.

Different instant asset write-off rules

While the instant asset write-off threshold for small businesses has been increased to A$30,000 and extended to 30 June 2020, Foat notes it only applies to businesses purchasing assets and generally does not apply to asset purchases relating to rental properties.

Drum observes that different instant asset write-off rules apply to small business entities and medium-sized business entities, especially for the year ended 30 June 2019.

“The immediate deduction amount will depend on the date the asset is first used or installed ready for use for a taxable purpose,” he says.

“For businesses registered for GST, the threshold is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.”

Businesses with a turnover of up to A$10 million can claim a deduction for each asset purchased and first used or installed ready for use, up to the following thresholds:

  • A$30,000, from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020
  • A$25,000, from 29 January 2019 until before 7.30pm (AEDT) on 2 April 2019
  • A$20,000, before 29 January 2019

Businesses with a turnover from A$10 million to less than A$50 million are also now eligible for the instant asset write-off for purchases up to A$30,000 each. They can claim a deduction for assets purchased and first used or installed ready for use from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020.

Tax practitioner obligations

The chair of the Tax Practitioners Board (TPB), Ian Klug, has urged tax practitioners to ensure their own personal tax obligations are up to date.

In 2018, in collaboration with the ATO, the TPB took action against thousands of tax practitioners who had fallen behind in their own tax obligations.

“I’m pleased to see that many practitioners have responded, paying over A$40 million in outstanding tax bills, and taking action with more than 6000 late lodgements,” says Klug.

He says the TPB has started 35 investigations into higher-risk breaches, with a view to imposing sanctions, including termination of registration.

The ATO is separately pursuing agent cases, including debt recovery litigation and prosecution actions.

Extending payment reporting obligations to new industries

Following a recommendation from the Black Economy Taskforce, the taxable payments reporting system (TPRS) has now been extended to cleaning, courier, road freight, information technology (IT), security, investigation and surveillance services.

These sectors, considered high risk for black economy activity, need to report information annually to the ATO about the payments they make to contractors for services.

For the financial year 2018-19, businesses that supply courier or cleaning services need to report payments made to contractors they use to deliver those courier or cleaning services using the taxable payments annual report.

This will need to cover all relevant transactions from 1 July 2018 to 30 June 2019. The annual report for these businesses is due by 28 August 2019.

Reporting for road freight, IT, security, investigation or surveillance services will be due by 28 August 2020, covering the 2019-20 financial year.