“The other 75 per cent have put their head in the sand and appear to be trying to ignore it,” says Mark Molesworth, tax partner at global consultancy BDO, about the ATO’s pilot program.
Nearly 10 million individual tax refunds had been issued for 2021, totalling around $28.6 billion with an average refund of about $2900, according to the ATO.
For the end of this tax year, it is signalling a tougher approach on debt and tighter scrutiny of claims made for increased expenses, or losses, caused by the COVID-19 pandemic.
Key priorities will include taxpayers’ record-keeping, work-related expenses and rental property income and deductions.
Nearly $4 billion, or around 44 per cent of incorrect claims last year, involved work-related expenses that were not directly related to earning income, not apportioned between business and private use, or failed to be supported by records to prove the claim.
The most common rejected or amended claims were for travel between home and work, expenses that were paid by the employer, or claiming an immediate deduction for the cost of tools and equipment for more than $300 instead of making deductions as their value declined over a number of years.
Tim Loh, ATO assistant commissioner, says: “We want to make sure that taxpayers are only claiming the deductions they are entitled to when it comes to work-related expenses and working from home. Nothing more, nothing less.”
The temporary shortcut method for working from home deductions is available until June 30.
That sets a rate of 80¢ an hour for claims (such as running expenses like lighting and heating) and requires only a record of the number of hours worked as evidence. It also removed the requirement to have a dedicated home business, which means working on the kitchen table qualifies for claims.
Loh says COVID-19 and increased working from home means there needs to be a reassessment of many traditional work-related expenses, such as travel and use of uniforms.
“How has working from home changed your work? A lot of it may have moved online, which means you do not have the same number or type of expenses,” Loh says.
“The higher the claim, the greater the burden of proof,” he adds. “You need to keep the relevant documents and records.”
The ATO will also be intensifying its monitoring of rentals on holiday homes, or second properties used by the owners, which increased in popularity during COVID-19 as many migrated to regional centres.
Common mistakes made by owners include attempting to claim deductions for longer periods than the place was rented or offering “mates’ rates” – discounted prices or preferential terms offered to friends rather than on a commercial basis – but still claiming full deductions, says Loh.
Holiday homeowners can claim a deduction for related expenses for the period a property is rented or genuinely available for rent, he says.
Management and maintenance costs, which include interest on loans, can generally be deducted against the owner’s income for the year.
Tax authorities are also tightening scrutiny of cryptocurrencies to ensure users are accurately reporting gains and losses and identifying whether it is being used as an investment or for business.
Plans include focusing on users’ record-keeping to ensure expenses claimed for using cryptocurrencies – such as software, commission or brokerage costs – are accurate, according to the ATO.
There are concerns many taxpayers believe cryptocurrency operates in an anonymous digital world, or that gains are tax-free or only taxable when holdings are cashed back into Australian dollars.
“Crypto assets are not anonymous,” says Loh. “The ATO receives data from a range of sources including crypto asset exchanges and AUSTRAC.”
“We find that many people are failing to keep good records when they buy, sell or trade crypto assets, leading to errors or omissions when reporting capital gains or capital losses in their tax return.”
Taxpayers should keep records for all crypto-asset transactions to work out if they have made a capital gain or capital loss, he says.
Records need to include receipts of purchase or transfer of crypto assets; exchange records; and details of when crypto assets are moved to or from any platform or smart contract.
Also included must be agent, accountant and legal costs; digital wallet records and keys; the date of the transactions; the value of the crypto assets in Australian dollars at the time of the transaction; and what the transaction was for and who the other party was.
Loh says all crypto gains and losses from sales, trades or gifts must be recorded. That includes the exchange on one crypto asset for another or converting crypto assets into a fiat currency, such as Australian dollars.
“If a capital loss is made from a disposal of crypto assets, the capital loss can only be used to offset current and future year capital gains and can’t be offset against other income such as salary and wages,” adds Loh. “Capital losses must be reported in the year they were made.”
Taxpayers having problems should contact the ATO to discuss strategies for paying their debt.