Do you own a rental property, or rent your home out on Airbnb? The Australian Taxation Office (ATO) might have its eye on you at tax time.
ATO Assistant Commissioner Tim Loh warned this week that the ATO will be prioritising areas such as with rental property deductions, work-related expenses and capital gains tax.
“Within these areas, we have identified common mistakes, and are particularly focused on addressing these and supporting taxpayers and registered tax agents to get their claims right this year”, Loh said.
1. Rental property deductions
The ATO’s review of income tax returns show 9 in 10 rental property owners are getting their return wrong, meaning that rental income might be left out, or mistakes are made with property-related deductions, such as overclaiming expenses or claiming for improvements to private properties.
The review also showed that around 87% of individual rental owners use a registered tax agent to prepare their income tax returns.
“We encourage rental property owners and their registered tax agents to take extra care this tax time and review their records before lodging their return”, Loh said.
The ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was re-financed with some private purpose).
“You can only claim interest on a loan used to purchase a rental property to earn rental income – don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income”, Loh warned.
2. Work-related expenses: avoid the ‘copy-paste’
“We continue to see shifts in the way Aussies are working, and it’s important to consider whether your claims reflect your working arrangements this year.
“There have also been some changes in how you calculate things like working from home deductions, so don’t be tempted to just copy and paste your prior year’s claims. We know a lot of people are working back in the office more compared to last year”, Loh said.
This year, the ATO is particularly focused on ensuring taxpayers understand the changes to the working from home methods and are able to back up their claims.
To claim your working from home expenses as a deduction, you can use the actual cost, or the revised fixed rate method, so long as you meet the eligibility and record-keeping requirements.
“Keeping good records will give you flexibility to choose the right method that suits your circumstances and gives you the best deduction this tax time”, Loh advised.
3. Capital gains tax: have you considered all assets?
Capital gains tax (CGT) comes into effect when you dispose of assets such as shares, crypto, managed investments or properties. To ensure you are meeting your obligations and paying the right amount of tax, you need to calculate a capital gain or capital loss for each asset you dispose of unless an exemption applies.
“Generally, your main residence is exempt from CGT, however if you have used your home to produce income, such as renting out all or part of it through the sharing economy, for example Airbnb or Stayz, or running a business from home, then CGT may apply”, Loh noted.
The ATO is reminding taxpayers of the importance of keeping records of the income-producing period and the portion of the property used to produce income to calculate your capital gain. If you used your property to earn income, and qualify for an exemption, make the election in your tax return.
Loh said that with many people facing tougher times this year, the ATO expects fewer will receive a refund or may receive smaller refunds than they were expecting, and more may have tax debts to manage.
‘If you’re feeling overwhelmed or getting behind with your tax, let us know as early as possible or have a chat with your registered tax agent so we can work with you to find a solution”, he concluded.
