ATO Focus on Several Major Areas
- Aldo Yunus
- Jun 28, 2024
- 4 min read
We all know that during and after COVID-19, ATO improved its system digitally for audit, security, and privacy purposes. However, I will be focusing on the audit areas that ATO has been pursuing.
As the tax time approaches, ATO has announced that they will be taking a closer look at the few common errors being made by taxpayers:
Overclaiming work-related expenses (i.e. WFH expenses);
Overclaiming deduction for rental properties (i.e. incorrect apportionment of interest on loan); and
Urgently completing their tax return prior to 'Tax Ready' on their PAYG.
1. Work From Home Expenses
Fixed rate method
ATO has revised the fixed rate method of calculating for WFH from 52 cents to 67 cents per hour, whilst the shortcut method (i.e. 80 cents per hour) have been abolished since 30 June 2023. Under this method, the rate includes the additional running expenses you incur for:
home and mobile internet or data expenses;
mobile and home phone usage expenses;
electricity and gas (energy expenses) for heating, cooling and lighting; and
stationery and computer consumables, such as printer ink and paper.
The rate per work hour (67c) includes the total deductible expenses for the above additional running expenses. If you're using this method, you can't claim an additional separate deduction for these expenses.
Note:
You will need to ensure that you DO NOT double-claim your expenses. Talk to your accountant or advisor for further discussion. Otherwise, please feel free to contact us for further conversation
Actual cost method
Note there is another way to claim your WFH expense, which is the actual cost method. However, to use the actual cost method to claim actual expenses, you must:
incur additional running expenses as a result of working from home; and
keep records or other written evidence, which shows the amount:
you spend on expenses
you spend on depreciating assets you buy and use while working from home
of work-related use for your expenses and depreciating assets.
Note:
You can't incur additional running expenses if other members of your household (who are not working from home) are in the same room as you while you are working from home.
Occupancy expense - only when you carry on a business from home
As an employee or working under employment, you are not able to utilise this method as you won't be able to meet the requirement that has been set out by ATO as per the link below:
However, if you are carrying on a business and utilise part of your home (i.e. main residence or rental) - please feel free to contact us for further conversation.
Note:
The downside of an owner-occupied (i.e., main residence) home is that you might not be eligible for Full Main Residence Exemption when you sell the property because you used part of the house to produce income.
2. Rental Properties
ATO has been focusing on the overclaiming deduction on rental properties for a few years now. There are several areas that ATO is planning to look closer this year:
Repairs and Maintenance
To put it simply, a repair normally involves fixing what is broken or replacing only parts of the plant and equipment ("asset"), not the entire asset itself. However, should you replace the whole asset, you will have to replace it with the equivalent functioning asset if you are planning to deduct the full amount of your purchase cost. Otherwise, you will need to depreciate the asset under Division 40 (i.e. plant and equipment) depending on ATO rule on the useful life of the asset. For example, if you have a broken dishwasher with a type XXX, then you will need to replace it with the equivalent dishwasher that has similar functioning, NOT a better function.
Further reading can be found below at ATO website:
Interest on loan
ATO assistant commissioner Robert Thomson said, “People aren’t apportioning correctly between interest relating to private use and the interest that relates to the income they’re generating from their investment property.”
As per the ATO rule, we note that you can't claim a deduction for interest expenses:
for any period the property is used for private purposes, even if it's a short period of time;
on the portion of the loan used for private purposes (for example, to purchase a car), either when
you took out the loan
you refinance the loan
on a loan you used to buy a new home if you don't use the new home to produce income, even if you use your rental property as security for the loan.
For example, you can read more on the ATO website:
If you think this would be the case for you, please feel free to chat with your accountant or advisor. You can also contact us for further conversation.
3. Earlier Tax Return
ATO recommended that all the taxpayer ("you") should not complete their tax return urgently before the PAYG becomes 'tax ready'. There are a few reasons:
All the bank's platforms will only be reporting any bank interest after 7 July which some of them may take up to 30 July;
Some of the businesses (i.e. your employer) may need additional time to adjust your PAYG summary to recognise your income up to 30 June as your employer utilise it as a deduction for their business. Therefore, there might be a difference between what you have on the last payslip prior to 30 June and showing the ATO when it becomes 'tax ready';
Understanding, ATO has been making numerous amendments for taxpayers during the financial year where there have been cases clients received notice of additional tax refund or payable due to the point above; and
The ATO might consider that you intentionally misreported your income to obtain a tax refund, which could potentially put you at risk of being penalized by the ATO.
However, you can get the estimated tax refund while waiting for the PAYG summary to be 'tax ready' prior to preparing your tax return by contacting us for further conversation.
Comments