Wondering which expenses will the ATO target in 2020 tax returns?
As tax time for the 2019-2020 financial year creeps closer and approximately 14 million Australians prepare to lodge their tax return, there are certain expenses that the Australian Taxation Office (ATO) will be targeting to ensure that people aren’t claiming more than they’re entitled to.
Each year, Australians receive tens of billions of dollars in refunds. But with false claims costing the ATO more than $1.5 billion each year, the ATO use their increasingly sophisticated software to both deter and detect false claims.
There are few things worse than being caught out by the ATO, which is why you should always be careful to ensure that everything that you claim in your tax return is correct. Even making an innocent mistake could be cause enough for a visit from a tax auditor.
However, with so many tax returns to get through, the ATO tend to have specific areas that they focus on each year when it comes to detecting inconsistencies and investigating false claims. Knowing which areas the ATO are targeting this financial year can help you to ensure that everything is up to scratch and that you haven’t made any accidental errors. However, employing the help of a tax agent can also give you peace of mind to know that an auditor won’t come knocking at your door.
Working from Home Expenses
The COVID-19 pandemic has meant that more people than ever worked from home at some point during the 2019-2020 financial year. In the 2017-2018 financial year, approximately 9 million people claimed a total of $21 billion in work-related expenses and it is expected that this figure will rise significantly because of the coronavirus pandemic.
As such, the ATO will be closely watching for people who are over-claiming on expenses related to working from home. For example, if someone lodges a working-from-home claim as well as a work uniform laundry claim, the lodgement will likely raise eyebrows as it is not likely that someone would need to wear a uniform while working from home.
However, for people who were required to work from home during the pandemic, the ATO have introduced a temporary shortcut method that enables taxpayers to calculate working from home expenses at a rate of 80 cents per hour from 1 March 2020 to 30 June 2020.
This shortcut will be introduced in addition to pre-existing methods of calculating working from home expenses. If it is more appropriate for taxpayers to use the fixed-rate or actual-cost methods, they may choose the method that best suits their circumstances.
Work-Related Travel Expenses
The COVID-19 pandemic has also meant that there has been a decreased need for work-related travel. As such, taxpayers whose travel claims are significantly higher than other people in the same income level and occupation will be flagged as suspicious and potentially investigated. Work travel that is eligible for tax deduction includes:
- Travel between two workplaces
- Travel from one workplace to another, which is not a usual workplace, while still on duty
- If you work from home but need to travel somewhere for work by the same employer
- Where you shift your place of work constantly throughout the day before heading home
- If your work requires that you must carry heavy or bulky materials – such as a ladder – which cannot be left at your workplace
Additionally, for work-related travel expenses over $300, there must be evidence, such as receipts or logbooks, which prove the travel that your work required.
In the 2017-2018 financial year, 2.2 million Australians claimed $47 billion in rental deductions, with more than 1,500 of these taxpayers handed out a total of $1.3 million in penalties. As such, rental deductions will also be an area of focus for the ATO this financial year.
Many of the taxpayers who were audited misunderstood the rules regarding short-term rentals. As such, they omitted their rental income for their short-term rental properties, such as if they use them for AirBnB.
Additionally, the ATO will be cracking down on taxpayers who refinance the loan on their rental property for:
- private home renovations, to pay for a holiday, or make other unrelated purchases, and the claim the whole amount of interest rather than just the interest that applies to the rental property.
JobKeeper for Sole Traders
Many businesses have taken advantage of the Government’s JobKeeper initiative. For the most part, this information will automatically be included in employees’ pre-filled reports. However, for sole trader clients on JobKeeper, the information regarding these payments will have to be manually included as it will not be pre-filled.
There you have it—a brief guide to help you understand which expenses will the ATO target in 2020 tax returns.