The ATO focus for this year is largely upon rental properties. A random audit of rental property was conducted and the ATO found errors in 9 out 10 of the samples checked. The main problems the ATO found were:
It is important that when you take money out of your home loan account for something other than maintenance, repairs or improvements to the house itself that you account for this personal drawing when calculating interest. For example, if you decide to buy a new car and extend the mortgage to do that, then the amount you borrowed for the car needs to be converted to a percentage of the overall loan and that percentage of the interest is no longer tax deductible.
Capital works claimed as repairs
In general, when you undertake improvements to your property the cost of those improvements will need to be depreciated over several years and not just claimed as an outright deduction. In some cases where you are repairing damage and replacing like with like, then the amount can be claimed in full – it is best in these circumstances to seek the advice of a tax professional as it is not always as simple as it seems.
Incorrect apportionment of expenses for holiday homes
If you have a holiday rental that you use yourself at any time during the year and you do not pay yourself the market rental for that time, then expenses like your rates will not be fully deductible and will have to be apportioned on a time basis. Also, if you have friends or family staying there and they don’t pay the market rate, then this will add to the non-claimable portion of certain expenses. You will need to keep good records yourself of this, because it will not be on your end of year statement from the agent; however if they are contacted by the ATO they will have to disclose times the property was booked for private use.
Omitted income from accommodation sharing
What the ATO is looking for here is income from arrangements like Air BnB where you rent a portion of your own home for profit. A share arrangement where people all share costs of rent, food and utilities is not what they are looking for here. The ATO has said that they will be getting records from Air BnB and other platforms to see whether people are renting out their homes or granny flats.
As more and more of our lives are documented and tracked digitally, the work of the auditors is becoming easier. The ATO can view social media posts, access toll data, obtain records from online market platforms such as eBay, check transfers from the share registries and land titles offices, confirm payments to councils and utilities and check various lifestyle purchases. It is not worth taking the risk of submitting a claim for something you are not entitled to either for yourself or your tax agent. Just because a tax agent promises you a big refund doesn’t mean they are doing the right thing for you, and if they are doing the wrong thing they will eventually be caught out and so will you.
As with last year, the ATO is stressing that taxpayers must keep records of their claims. The only exception to this is if you are claiming less than $300 in work-related deductions, and even then you should be able to show how you calculated the amount you spent and that it was on things related to your employment.
There was a lot of information on record-keeping in last year’s post on this, but I’ll just add one more thing – logbooks. If you are claiming expenses for a vehicle using the logbook method, then you must have a logbook and renew it every five years. While there is an exemption from keeping the logbook for certain vehicles such as one-tonne utes, if you are using those vehicles for anything other than work, then you would be wise to keep a logbook – especially if the vehicle is a dual-cab. The ATO can challenge you and then the burden of proof will be on you to show that your claim is justified.