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With tax time fast approaching, the Australian Taxation Office (ATO) has identified four key areas where people often make mistakes. It’s essential to understand these issues before filing your return to avoid unnecessary complications.
1. Record Keeping This Tax Time
A fundamental rule during tax time is that if you can’t prove it, you can’t claim it. If you are audited, the ATO will disallow deductions for unsubstantiated or unreasonable expenses. Even if an expense is below the substantiation threshold (e.g., $300 for most expenses, $150 for laundry), the ATO may still inquire about how you arrived at that amount. For example, if you claim the full $300 in work-related expenses, you must be able to justify how you arrived at that specific figure.
Aside from standard records like salary, wages, allowances, and government payments, you also need to keep records for:
- Interest or managed funds
- Expense records related to any deductions, including proof of how those expenses relate to your income
- Assets such as shares, trust units, rental properties, holiday homes, or cryptocurrency
- Keep records for at least five years, and digital copies are acceptable as long as they are clear and legible.
These records could include tax invoices, receipts, or diary entries that substantiate the expense and its relevance to how you earn your income.
2. Work-Related Expenses
To claim a deduction for work-related expenses this tax time, you must have incurred the expense yourself, and it should be directly related to your work.
What Expenses Are Related to Work?
You can claim deductions for expenses that are incurred to generate assessable income, as long as they are not of a capital, private, or domestic nature. For example, an actor cannot claim the cost of hair and makeup for an audition because she is not earning income at that stage. Similarly, expenses for self-education are only deductible if they directly relate to your current work and income, not future career prospects.
Work-Related or Private?
Many taxpayers struggle with separating work-related and private expenses, especially for things like mobile phone services or internet access. If you use these services for both work and private purposes, you must apportion the expense and only claim the work-related portion.
The ATO will also scrutinize claims for COVID-19 tests. You can only claim the test if it was necessary to attend or remain at work. Tests taken for personal purposes or when working from home won’t be deductible.
Claiming Work-From-Home Expenses
As the world moves beyond the pandemic, the ATO is focusing on work-from-home claims this tax time. If you worked from home during the pandemic but have returned to the office, your work-from-home claim should decrease. Discrepancies will raise red flags.
Three methods for claiming work-from-home expenses:
- Simplified 80 cents per hour method (for 1 March 2020 to 30 June 2022), where you can claim 80 cents per hour worked from home. This includes all expenses, so you cannot claim individual items like office furniture or a computer.
- Fixed rate 52 cents per hour method, covering home office running expenses, plus claims for phone, internet, and equipment depreciation.
- Actual expenses method, where you claim your actual costs but must reduce the claim by personal use.
The ATO pays particular attention to the “Actual expenses method,” as it often results in higher claims. Ineligible expenses include personal items like coffee, tea, and toilet paper, as well as children’s education expenses like laptops.
3. Rental Property Income and Deductions
For those who own rental properties, it’s crucial to report all rental income, including long-term and short-term rent, rental bonds, back payments, and insurance payouts. If you have rental properties outside Australia, you still need to declare the income in your tax time return unless you’re classified as a temporary resident.
Co-Owned Properties
If you co-own a property, rental income and expenses should be reported based on the legal ownership percentage. For example, if you own 25% of a property, you should report 25% of the income and expenses, even if you pay most of the expenses yourself. The ATO assumes that where taxpayers are related, their equitable interest in the property is the same as the legal title.
4. Capital Gains from Crypto, Property, or Other Assets
Capital gains tax (CGT) applies when you dispose of an asset, such as property, shares, or cryptocurrency. It’s important to calculate any capital gains or losses and report them during tax time. However, personal use assets like a boat that cost less than $10,000 may not be subject to CGT.
Crypto and Capital Gains Tax
A common question during tax time is when cryptocurrency is taxed. If you sell, exchange, trade, or use cryptocurrency to pay for goods or services, you trigger a CGT event. If you gift crypto or exchange it for another cryptocurrency, it’s also considered a taxable event. Transfers between wallets don’t count as a CGT disposal, as long as you maintain ownership.
You must keep accurate records of every cryptocurrency transaction, including purchase prices, dates, and exchange details. This is essential for tax time, especially since the ATO regularly performs data-matching with crypto platforms and banks.
Gifting an Asset Might Still Incur Tax
Donating or gifting an asset does not exempt you from capital gains tax. If you gift an asset and it’s worth more than what you paid for it, the ATO may apply the market value substitution rule, treating the gift as if you received the market value for CGT purposes. The same applies to cryptocurrency donations, where the market value of the crypto at the time of donation will be assessed for CGT.
By staying on top of these key issues during tax time, you can avoid common mistakes and ensure that your return is accurate and compliant, and as always speak to a professional.
