By Rebecca Macdonald and Alex Smith
Tax season is here and the flood gates are opening as Australians all over are lodging their tax returns in the hope of receiving a well-deserved tax refund. For most of us we won’t think twice about tax until next year, but the tax man is working hard in the background all year round to catch unsubstantiated claims or unreported income.
With better technologies to data match and even phoning your employers to double check claims, it’s easier to play it safe than receiving any unwanted phone calls. But what’s really on the Australian Taxation Office’s (ATO) hit list this year? And how do you get around the traps to avoid any unnecessary scrutiny into your own tax affairs?
Here are 3 things to watch out for this year:
Work related deductions
It comes as no surprise that every year the ATO has a spotlight on claims for work related expenses. Taxpayers are now being benchmarked against the industry standard for your occupation and income bracket, with higher than average claims being flagged and possibly subject to further review with you and even your employer.
In particular, the Assistant Commissioner has spoken about work uniforms being a common trap for employees. Deductions for uniforms are allowed when they are occupation-specific clothing, protective clothing or clothing that is unique to your job. Everyday clothes like suits and dresses, even if they meet your employer’s dress code, won’t by themselves pass the criteria suitable for a deduction.
Work related kilometres are also high on the agenda; the trap here is including home to work trips as these are generally considered private in nature.
When thinking about claiming a deduction, just remember to apply the following three characteristics to stay out of trouble; you must have actually incurred the expense (and not be reimbursed), the claim must be in relation to earning your employment income (ie. not private or domestic in nature), and lastly you need to have records to prove it.
The sharing economy
Although the sharing economy has fixed itself as part of our lifestyles now, it does come with additional tax obligations that anyone operating in this space needs to be aware of.
All providers of ride sharing services must have an ABN and be registered for GST despite how much money the individual earns from this activity. In doing so, you are able to claim the GST credits and deductions for expenses incurred in providing this service. Keep in mind that these can only be claimed to the extent they relate to earning your business income. If there is an element of the expense that is private, then you should only claim the business portion.
Most importantly, the ATO is actively working with information supplied by the ride sharing facilitators, so don’t forget to include all income earned in this activity when you lodge your tax return.
The ATO have announced they are keeping an eye out for rental properties to identify suspicious errors in reporting rental deductions as well as rental income. Technology developments are allowing the ATO to data match properties in surrounding areas and compare what taxpayers are lodging in their tax returns.
The key to remember is ensuring your rental deductions are claimed on the basis that your property was genuinely rented out, or genuinely available for rent. Further, the ATO is closely watching popular holiday destinations across Australia to understand market rent rates. So if you are renting your property to family or friends at a discounted rate, you can only claim part of this deduction equal to the amount of rent charged for the period they occupied the property.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.