Every year, the Australian Tax Office (ATO) is responsible for ensuring that people pay the correct amount of tax and don’t claim tax returns for more than they are entitled to. False claims can get you in serious trouble with the ATO. So, it’s important that your claims in your 2021 tax returns are accurate and only include expenses that are eligible.
To help you get it right, we’ve collated the areas that the ATO are going to target in 2021 tax returns.
With 14 million Australians lodging a tax return at the end of the financial year, the ATO have a big job to make sure they detect false claims. To do this, they use advanced technology to check if the claims being made by taxpayers are legitimate.
The ATO tends to have specific areas that they focus on each year when it comes to detecting inconsistencies and investigating false claims, and making an error in one of these areas could increase your chance of a visit from the auditor.
When doing your tax return, make sure you take extra care when claiming in the follow areas to avoid getting into trouble.
Working from Home Expenses
It’s no surprise that working from home expenses will be a focus of the ATO in 2021. With ongoing lockdowns and restrictions due to the COVID-19 pandemic, many people who would normally work in an office setting have been working remotely. This means that people will be claiming for expenses relating to their home office, some of which are items they may have never needed before. For example, many people have purchased office furniture and supplies such as ergonomic desk chairs, additional monitors and stationery, which they may have normally used in the office.
For people who were required to work from home during the pandemic, the ATO has a shortcut method that enables taxpayers to calculate working from home expenses at a rate of 80 cents per hour, rather than needing to separately calculate costs for specific expenses and apportioning the work and private component. Taxpayers can choose to use the fixed-rate or actual-cost method depending on their circumstances.
When it comes to working from home expenses, it’s important to remember that these must be costs that you spent yourself and have not been reimbursed for. Additionally, they must relate directly to earning your income.
Work-Related Car and Travel Expenses
People who typically travel a lot for work, whether that be by car or plane, often have high claims relating to this travel. However, in the 2020/21 financial year, many people will not have been required or able to travel or use their car as much. The ATO is aware companies are opting for video conferencing rather than needing employees to travel interstate for meetings, and international travel. The same applies to everyday meetings where individuals would previously driven to the clients site. As such, taxpayers whose travel claims in 2021 tax returns are significantly higher than other people in the same income level and occupation may attract the attention of the ATO.
Data Matching Motor Vehicle Registrations
In the last year, the ATO has undertaken a data matching campaign, working with state motor vehicle registries to gather data on company owned vehicles, as well as individual’s vehicles. This means that people who drive ‘company cars’ for personal use will be targeted this tax time.
In some cases, company owners or directors aren’t declaring private use for fringe benefits. This means that if a company owner buys a car for use by a family member and the private use is disproportionate to business use, they could be detected and fined by the ATO. To avoid this, make sure you are keeping an accurate logbook to prove the percentage the car is used for business purposes.
Similarly to last year, rental deductions will be a focus area of the ATO in 2021 tax returns. Approximately 8 per cent of Australians own an investment property, and majority of these are rented to tenants. However, discrepancies in rental property claims are a major component in lost tax.
The ATO will be targeting property owners who make excessive expense claims or to try to claim costs that actually relate to the home they occupy. Travel to and from rental properties is no longer able to be claimed. Focus areas include taxpayers claiming capital works as a lump sum rather than depreciating the cost over a number of years, excess or ineligible repairs and maintenance and people incorrectly apportioning expenses for short-term rental properties/holiday houses by failing to account for periods when they or their family and friends use the property or times when they choose to keep the property vacant.
Remember that repairs or maintenance to restore something that’s broken, damaged or deteriorating are deductible immediately, but improvements , full replacements or renovations are mainly categorised as capital works and are deductible over a number of years.
As with everything related to tax, it’s important to keep accurate records to ensure your claim is legitimate. Store copies of all invoices, receipts and bank statements, and anything that helps to prove when your property was available to rent and therefore eligible for deductions.