As the time to complete our tax return draws closer, the ATO has revealed the top three things that will be in its sights this year.
“Within these areas, we have identified common mistakes and are particularly focused on addressing these and supporting taxpayers and registered tax agents to get their claims right this year,” ATO assistant commissioner Tim Loh said.
1. Rental property deductions
The ATO’s review of income tax returns shows nine in 10 rental property owners are getting their tax returns wrong, which often sees rental income being left out or mistakes being made with property-related deductions, such as overclaiming expenses or claiming for improvements to private properties.
The ATO states it is focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was refinanced with a private purpose).
“You can only claim interest on a loan used to purchase a rental property to earn rental income,” Mr Loh said. “Don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income.”
2. Work-related expenses
It’s important that your claims properly reflect your work arrangements.
“There have also been some changes in how you calculate things like working from home deductions, so don’t be tempted to just copy and paste your prior year’s claims,” said Mr Loh. “We know a lot of people are working back in the office more compared to last year.”
The ATO is focused on ensuring taxpayers understand the changes to the working from home methods and can back up their claims.
To claim working from home expenses as a deduction, you can use the actual cost or the revised fixed rate method, so long as you meet the eligibility and record-keeping requirements.
3. Capital gains tax
Capital gains tax (CGT) comes into effect when you dispose of assets such as shares or properties. To ensure you’re meeting your obligations and paying the right amount of tax, you need to calculate a capital gain or capital loss for each asset you dispose of unless an exemption applies.
According to Mr Loh, your main residence is generally exempt from CGT, except if you’ve used your home to produce income, such as renting out all or part of it through the sharing economy (such as Airbnb), or running a business from home, then CGT may apply.
The ATO reminds taxpayers of the importance of keeping records of the income-producing period and the portion of the property used to produce income to calculate your capital gain. If you used your property to earn income and qualify for an exemption, make the election in your tax return.