With the 2019 tax return preparation season now in full swing, there are a few things to consider to ensure lodgement of your return is completed seamlessly, and that it doesn’t attract the attention of the Australian Taxation Office (ATO).
Income Statements, myGov and Single Touch Payroll
Since 1 July 2018, many employers have been required to report employee payroll information using single touch payroll (STP). All employers will need to comply from 1 July 2019. STP benefits include allowing employees to track their year to date pay information and check if their employer is complying with compulsory superannuation guarantee requirements, however the short term presents some challenges. There is no longer a requirement for the employer to provide a PAYG Payment Summary, they are now accessed online via myGov. You should ensure income statements are marked ‘tax ready’ in myGov before lodging your return. If the income statement is marked ‘year to date’ or ‘not tax ready’, it means the employer has not finalised the payment information and important data may be missing. Once you have set up a myGov account, it is important that you do not ignore emails or text messages from the ATO as this will be their primary method of sending correspondence.
Please note that information reported on myGov will also be reported on the ATO Tax Agent Portal which is accessible by BQK.
Income and ATO Data Matching
The ATO has sophisticated data matching programs. They are generally aware of how much interest and dividends a taxpayer receives. You should note however that the data cannot be relied upon solely to prepare your return as there is no guarantee that all data has been collected. You should compare ATO information to your source documents to ensure all income is included in your return prior to lodgement. The ATO also have information in relation to asset sales including shares, property and even crypto-currency, so you should ensure these are not overlooked to avoid amendments and penalties for non-disclosure.
The ATO also has access to numerous sources of third-party data including popular holiday rental listing sites such as Stayz and Airbnb, shared economy services such as Uber and Air Tasker, and on line sales platforms such as Ebay. Once again you should ensure that all sources of income are included in your return.
ATO deductions in the spotlight
The ATO recently claimed that there was an $8.7 billion shortfall between the tax individuals are expected to pay and the tax they actually are paying. They believe work-related expenses are the biggest element in that “tax gap”. They have signalled looking closely at all work related expense deductions this year, in particular:
- Claims for work-related clothing, dry cleaning and laundry expenses. The ATO has flagged that it will be checking taxpayers who take advantage of the exemption from keeping receipts for claims of less than $150 on laundry expenses. The ATO believes that too many people are claiming this without actually incurring the expense. Additionally, conventional clothing without logo’s is not deductible irrespective of whether or not it is a requirement of your employment;
- Deductions for home office use including claiming for “occupation” costs like rent, rates and mortgage interest, which are not allowable unless you are actually running a business from home;
- Overtime meal claims. If you receive an allowance from your employer that is shown on your payment summary, and it is paid at or below the ATO reasonable amount, the ATO will generally accept a corresponding deduction up to the amount received as long as you have incurred the expense. If you claim more than the allowance you will most likely attract attention. If the amount is not shown on your income statement, a claim is generally not allowed without strict substantiation;
- Mobile phone and internet costs, with a particular focus on people who are claiming the whole or part of their personal mobile bill and home internet, as work-related;
- Motor vehicle claims where taxpayers take advantage of the 68 cent per kilometre flat rate available for journeys up to 5,000kms. The ATO is concerned that too many taxpayers are automatically claiming the 5,000km limit regardless of the actual amount of travel;
- Incorrectly claiming deductions under the rule allowing taxpayers who have incurred work-related expenses up to $300 in total to make a claim without receipts. The ATO believes that some taxpayers are claiming this, or an amount just less than $300, without actually incurring the expenses.
There is no such thing as a “standard deduction”. Before making any claim ensure you understand what you can and can’t claim. Also that you have the necessary proof (invoices, receipts, diaries etc.), that you actually incurred the expenditure and that it was work or business-related.
Rental Property/Holiday Homes
According to the ATO over 1.8 million people own an investment property. Recent ATO audits found errors in 90 per cent of returns reviewed. As such, expect them to focus on the following:
- Excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property;
- Incorrect apportionment of rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than split proportionately;
- Holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed. This is particularly important for holiday homes where the ATO regularly finds evidence of home owners claiming deductions for their holiday home on the grounds that it is being rented out, when in reality the only people using it are the owners, their family and friends, often rent-free;
- Incorrect claims for newly purchased rental properties. The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years. Expect to see the ATO checking such claims and reviewing claims which don’t stack up.
As with work related expenses, property owners need to keep good records. If you can’t substantiate it, you can’t claim it, so make sure you keep invoices, receipts and bank statements, as well as proof that your property was available for rent such as rental listings and details of advertising.
A final word of warning
Just because a friend or associate may have received a large refund doesn’t mean it was correct. Their circumstances may be very different from yours, and they could be in the firing line of the ATO.
Please contact Brealey Quill Kenny, Canning Vale should you wish to discuss any of the above points or to arrange an appointment on 9256 2777.