What the ATO has its eye on in 2024 (and tips on how you can avoid an ATO audit or amended assessment)
We're now in the throes of 2024 lodgement season, and as taxpayers look to pool together their tax information to provide to their accountant, the ATO have highlighted some areas of concern that they will be paying particular attention to come lodgement of 2024 tax returns.
ATO Assistant Commissioner Rob Thompson highlighted ‘These are the areas that people are most likely to get wrong, and while these mistakes are often genuine, sometimes they are deliberate. Take the time to get your return right.’
So at DGF Advisory, we've summarised these areas the ATO have their eye on in 2024, so that you can help avoid getting stung with an amended assessment, or worse an ATO audit.
Don't rush!
Whilst data feeds from your employer's Single Touch Payroll (STP) reporting, banks, listed company shares and investments in managed funds do pre-fill into ATO reports, it can take some time for this information to be finalised and available to input into your tax return. Furthermore, some managed funds can take months to complete the annual tax statements, so it's important to hold fire until you have all the information at hand.
The ATO have warned taxpayers against lodging too early - if you have received income from multiple sources, you need to wait until all income is finalised and tax ready before you lodge your return.
‘We see lots of mistakes in July where people have forgotten to include interest from banks, dividend income, payments from other government agencies and private health insurers,’ said Mr Thomson.
For most people, this information will be automatically pre-filled in their tax return by the end of July. This will make the tax return process smoother, save you time, and help you get your tax return right.
‘By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO.’
By ensuring your income is complete and nothing has been inadvertently omitted, the likelihood of ATO amending your assessment to include income that has been data-matched is much lower. Where you have any concerns, please speak to us to provide clarity on your situation.
Rental Properties
Rental properties continue to remain high in the ATO's crosshairs, with ATO data suggesting 9 out of 10 rental property owners are getting their tax returns wrong.
‘This year, we’re particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit. We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we’re keeping a close eye on this,' Mr Thomson said.
Repairs and maintenance
Repairs and maintenance is one area where the ATO conduct their review activities. General repairs and maintenance on you rental property can be claimed as an immediate deduction, but where items are capital in nature, these need to be claimed over time.
Where initial repairs are conducted on a newly purchased property, or improvements during the time you hold such as building a new deck or outdoor living area, these are not deductible as repairs and maintenance and should be added to the cost base of the property and depreciated over time. Whilst there may be no immediate deduction available, the benefit may come later when it comes time to sell and you have an uplifted cost base to reduce any capital gains made on the sale.
Private usage
Where a rental property on the coast or up in the high lands may attract high levels of seasonal rental, it's important to note that where landlords have made their property available for private use to themselves, friends and family for no or little rent, you must attribute the deductibility of expenses to ensure you are not claiming for when the property was not genuinely available for rent.
Private usage may also be during peak periods where there are seasonal rental peaks, so ensuring that you apportion the deductibility of rental expenses is crucial to avoid ATO attention.
Ensuring all family and associates private usage is accounted for and fair market rental is paid is crucial in correctly lodging your rental property schedule.
The ATO's data-matching reach is extending year to year (including via AirBnB), so if your property is not genuinely available for rent for parts of the year, the ATO will likely know.
Mr Thompson suggested doing your tax return on your own with rental properties in the mix may not be the best approach for many taxpayers.
'As reporting rental income and deductions can be complex, many individual rental owners choose to use a registered tax agent to help them prepare their income tax returns.
‘Ensuring you provide full and complete records to your registered tax agent allows them to prepare your tax return correctly, so you claim everything you’re entitled to and nothing that you’re not,’ Mr Thomson said.
At DGF Advisory, we are here to help you navigate through this complex area that many are still getting wrong.
Work-related expenses
In 2023, more than 8 million Australians claimed a work-related deduction, with half of those relating to a working from home deduction.
Last year, the ATO revised the fixed rate method of calculating your working from home deduction to broaden what is included, increase the rate of deduction and adjust the records you need to keep.
As these changes are now in full effect, you must have comprehensive records to substantiate your claims as you would for other deductions.
To use the ATO fixed rate method, you need records that show the actual number of hours you worked from home (such as calendar entries, a work diary or spreadsheet showing the days and hours worked from home) to substantiate the basis for your deduction. Estimates or averages will not be considered as sufficient substantiation in the eyes of the ATO and the deduction disallowed. This method includes all home use of mobile phone, home internet, heating and cooling, as well as printing and stationery costs.
Where you are claiming the actual cost method, ensuring the running costs are appropriately documented, such as gas and electricity bills, mobile phone and home internet bills, and the business usage of each of these. Where you are claiming costs for a dedicated home office space, ensuring the correct apportionment of this space as a part of the full dwelling to allow for the maximum allowable deduction.
Working from home expenses can be claimed using either method, which gives you the flexibility to use the method that works best for you.
‘Copying and pasting your working from home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’. Your deductions will be disallowed if you’re not eligible or you don’t keep the right records.’ Mr Thomson said.
Remember, there are 3 golden rules for claiming a deduction for any work-related expense:
you must have spent the money yourself and weren’t reimbursed,
the expense must directly relate to earning your income, and
you must have a record (usually a receipt) to prove it.
Where you are unsure of what you may be eligible to claim, the ATO provides occupation and industry summaries via their tax time tool-kit which may be useful, or you can contact us to discuss your situation.
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