PRIORITIES FOR THE ATO THIS TAX TIME

Key focus areas for Tax Time

In May, the Australian Taxation Office (ATO) announced four key focus areas for Tax Time 2022. The ATO will be focusing on:

1. record-keeping
2. work-related expenses
3. rental property income and deductions, and
4. capital gains from crypto assets, property, and shares.

The three golden rules for claims according to the ATO are:

• You must have spent the money yourself and weren’t reimbursed.
• If the expense is for a mix of income-producing and private use, you can only claim the portion that relates to producing income.
• You must have a record to prove it.

Record-keeping

There are still some weeks left until tax time, but if you start organising the income and deductions records you’ve kept throughout the year, this will guarantee you a smoother tax time and ensure you claim the deductions you are entitled to.

For those people who deliberately try to increase their refund, falsify records or cannot substantiate their claims the ATO will be taking firm action to deal with these taxpayers who are gaining an unfair advantage over the rest of the Australian community who are doing the right thing.
Lodge right, no worries
The ATO often see lots of mistakes in July as people rush to lodge their tax returns and forget to include interest from banks, dividend income, payments from other government agencies and private health insurers. 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 get your tax return right. If you want to lodge earlier, you must take extra time to manually add all your income.

You can check if your employer has marked your income statement as ‘tax ready’ as well as if your pre-fill is available in myTax before you lodge. That way, an amendment doesn’t need to be made later, which could result in delays to your refund.

Available pre-fill information and readiness to lodge can be easily checked in the ATO app this tax time.

While ATO receives and matches a lot of information on rental income, foreign-sourced income and capital gains events involving shares, crypto assets or property, ATO doesn’t pre-fill all of that information.

Work-related expenses

Some people have changed to a hybrid working environment since the start of the pandemic, which saw one in three Aussies claiming working from home expenses in their tax return last year. If you have continued to work from home, we would expect to see a corresponding reduction in car, clothing and other work-related expenses such as parking and tolls.

To claim a deduction for your working from home expenses, there are three methods available depending on your circumstances. You can choose from the shortcut (all-inclusive), fixed-rate and actual cost methods, so long as you meet the eligibility and record-keeping requirements.

Each individual’s work-related expenses are unique to their circumstances. If your working arrangements have changed, don’t just copy and paste your prior year’s claims. If your expense was used for both work-related and private use, you can only claim the work-related portion of the expense. For example, you can’t claim 100% of mobile phone expenses if you use your mobile phone to ring mum and dad.

You can easily keep track of your expenses with myDeductions tool in the ATO app. Just take a photo of the receipt in the app, record the details of the expense and at tax time, simply upload the information directly to your return in myTax or email it to your registered tax agent.

Rental income and deductions

If you are a rental property owner, make sure you include all the income you’ve received from your rental in your tax return, including short-term rental arrangements, insurance payouts and rental bond money you retain.

A lot of rental property owners use a registered tax agent to help with their tax affairs. ATO encourages you to keep good records, as all rental income and deductions need to be entered manually, you can ask your registered tax agent for assistance. If ATO do notice a discrepancy it may delay the processing of your refund as we may contact you or your registered tax agent to correct your return. ATO can also ask for supporting documentation for any claim that you make after your notice of assessment issues.

Capital gains from crypto assets, property and shares

If you dispose of an asset such as property, shares, or a crypto asset, including non-fungible tokens (NFTs) this financial year, you will need to calculate a capital gain or capital loss and record it in your tax return.

Generally, a capital gain or capital loss is the difference between what an asset costs you and what you receive when you dispose of it.

Crypto is a popular type of asset and ATO expects to see more capital gains or capital losses reported in tax returns this year. Remember you can’t offset your crypto losses against your salary and wages.

Through ATO’s data collection processes, ATO knows that many Aussies are buying, selling or exchanging digital coins and assets so its important people understand what this means for their tax obligations.

Double-dipping mistakes

Some ‘double dipping’ mistakes the ATO sees when people lodge their tax returns each year.

Working from home expenses and the shortcut method

One in three Aussies claimed to work from home expenses in their tax return last year and the ATO expects this trend to continue.

You need to be aware the 80c shortcut method (SCM) is about to cease. This simplified claim was popular with many taxpayers forced to work from home (WFH) due to the pandemic. While we wait for the ATO to advise on further WFT methods, we recommend that taxpayers continue to record their WFH hours.

When preparing 2022 tax returns also be mindful that the shortcut method may not give you the best outcome particularly if you have included un-reimbursed expenses on computer hardware or software along with other home office expenses.

There are a lower (52) cents per hour claim which will allow you to claim these additional expenses. Note the 80 cents per hour claim is all-inclusive and additional expenses cannot be claimed.

A common mistake is people using the working from home shortcut method to claim their working from home expenses and then double-dipping, claiming additional amounts in return for expenses such as their mobile phone and internet bills, as well as the decline in value of equipment and furniture.

When the working from home shortcut method is used to claim to work from home expenses, it is all-inclusive.

There are three methods available to claim a deduction for working from home expenses depending on individual circumstances, the shortcut, fixed-rate and actual cost methods. The method that gives people the best outcome can be used, as long as the eligibility and record-keeping requirements for their chosen method are observed.

Taxpayers can use the home office expenses calculator to help them work out which method will give them the best outcome.

Note that –

• While the traditional methods require receipts, paperwork and other record-keeping, the shortcut method only requires a record of hours worked – diary entries or timesheets will suffice.
• When claiming working from home expenses using the shortcut method, the amount needs to be included in the Other work-related expenses question in tax returns with ‘COVID-hourly rate’ in the description field.
• If a method other than the shortcut method is used in later years and you want to claim depreciation for an expensive purchase such as a laptop, the correct records for that item must be kept.
• Getting your tax return right is simple if you have the right records. Make sure you have your records before you lodge your tax return and keep your records after you’ve lodged, in case we have any questions. The easiest way to keep track of your records is with the ATO app.
• Even if you choose to lodge your tax return with a registered tax agent, it is still your responsibility to make sure the agent has all the correct records.

Car expenses

Nearly 3 million people claimed work-related car expenses in 2021 and one of the most common mistakes was people using the cents per kilometre method to make their claim, and then double-dipping by claiming expenses separately such as fuel, car insurance, and registration.

The cents per kilometre rate is all-inclusive and covers a decline in value, registration, insurance, maintenance, repairs, and fuel costs. These expenses can’t be added on top of the rate when calculating deductions.

The ATO intends to take a closer look at claims calculated using the logbook method, to ensure they reflect people’s circumstances coming out of the pandemic.

You must choose your preferred method when calculating car expenses, the cents per kilometre or the logbook method. Just because there is a dip in the road, doesn’t mean you can double dip your car expenses.

Reimbursed expenses

It is important to make sure you aren’t claiming expenses where they have already been reimbursed by their employer.

An example would be: your boss has reimbursed your dry-cleaning costs for your uniform, but you then claim laundry deductions on your tax return.

Changes to the first home super saver scheme

From 1 July 2022 fund members may be able to release up to $50,000 in eligible super contributions, plus associated earnings, to help buy their first home with the first home super saver (FHSS) scheme.

The amount of eligible contributions that can count towards the maximum releasable amount from each financial year will remain at $15,000.

Fund members can release eligible super contributions and associated earnings if they are 18 years and over, and have received an FHSS determination, or release of the amount under the scheme.

They must not have:

• Held property in Australia
• Previously made an FHSS release request under the FHSS scheme.

If a member requests an FHSS determination before 1 July 2022 and makes an FHSS release request in relation to that determination, they are no longer eligible for the scheme. They can’t make any further requests using the FHSS scheme to receive the difference between the $30,000 and $50,000 limits.

Changes to single-touch payroll reporting

In May the ATO reminded us Single Touch Payroll (STP) reporting has expanded. This expansion is known as STP Phase 2. If you have employees, you will need to start reporting extra information to the ATO each time you run your payroll.

Some digital service providers needed more time to update their products and have applied for deferrals, which cover their customers. This means that when you can start Phase 2 reporting depends on when your payroll product is ready. If you haven’t already started Phase 2 reporting, make sure you ask your provider when their product will be ready if you don’t already know.

As an employer, it’s important that you’re across the changes required, and you’re getting ready to start Phase 2 reporting. This includes:

• checking if you need to make changes to payroll pay codes/categories so they align with Phase 2 requirements
• reviewing allowances, you pay and how they need to be reported in Phase 2
• understanding changes to salary sacrifice reporting
• understanding how to assign an income type to each payment.

Amounts paid to closely held payees should now be reported through STP. There are concessional reporting options for closely held payees reporting which include:

• reporting actual payments on or before the date of payment (along with your arm’s length employees)
• reporting actual payments quarterly
• reporting a reasonable estimate quarterly.

If you are having any problems implementing these changes, please give us a call.