Australians are being warned to pay close attention to their tax returns, with the Australian Tax Office cracking down on work from home expenses and landlords.
There are three common errors made by taxpayers, with many incorrectly claiming work-related expenses, landlords inflating claims for rental properties and failing to include all income when lodging their returns.
ATO Assistant Commissioner Rob Thomson said these three areas are the most common areas taxpayers get wrong.
“While these mistakes are often genuine, sometimes they are deliberate,” he said.
WORK-RELATED EXPENSES
More than 8 million people claimed work-related deductions in their 2023 tax returns, with more than half related to working from home expenses.
The ATO last year revised the fixed rate method of calculating work from home deductions, broadening what is included and increasing the rate.
With the changes in full effect this year, Aussies are being warned they must have “comprehensive records” to substantiate all work-from-home claims.
Records need to show the number of hours worked from home, such as a calendar, diary or spreadsheet, and any additional running costs such as an electricity or internet bill.
ATO Assistant Commissioner Rob Thomson said deductions for working from home expenses are calculated using the actual cost or fixed rate method.
“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’,” Mr Thomson said.
“Your deductions will be disallowed if you’re not eligible or you don’t keep the right records.”
Mr Thomson warned of three “golden rules” for claiming work-related expenses:
1. The taxpayer making the claim just have spent the money themselves and were not reimbursed
2. The expense must directly relate to earning an income
3. There must be a record of the expense, such as a receipt, to prove it
RENTAL PROPERTIESThe ATO will also be focusing on landlords and rental properties.
Data has revealed nine out of 10 rental property owners are getting their income tax returns wrong.
In particular, Mr Thomson said landlords make mistakes when it comes to repairs and maintenance deductions on their rental properties.
“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,” he said.
Performing general repairs and maintenance on rental properties can be claimed as an immediate deduction, but expenses such as initial repairs on a newly purchased property or any improvements made while living there are not deductible.
Replacing damaged carpet or a broken window can be claimed as an immediate deduction, Mr Thomson said.
“But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works,” he said.
“We encourage rental property owners to carefully review their records before lodging their return and take care to ensure they are claiming deductions correctly.”
Mr Thomson urged landlords to use a registered tax agent to help with their tax return as rental income and deductions can be complex.
He said landlords must provide “full and complete records” to allow the tax agent to prepare the return correctly.
DON’T RUSH TO LODGE
While the thought of a tax return can be exciting, the ATO is warning Aussies against rushing to lodge their return on July 1.
For those who receive an income from multiple sources, they are being warned to wait until their multiple income sources is pre-filled in the tax return before lodging.
“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,” Mr Thomson said.
While most taxpayers will have their information pre-filled by the end of July, it will make the process smoother and save time to wait until it is complete.
Lodging in early July can often result in the tax return flagged as “incorrect” by the ATO.
“We know some prefer to tick their tax return off the to-do list early and not have to think about it for another 12 months, but the best way to ensure you get it right is to wait for just a few weeks to lodge,” Mr Thomson said.
“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 unnecessary delays.”