Tax time 2023 is fast approaching and the ATO has provided some insights to the areas it will be focusing on consisting of rental property deductions, work-related expenses, and capital gains tax.
Rental property deductions
The ATO’s review of income tax returns show 9 in 10 rental property owners are getting their return wrong.
Common mistakes of taxpayers include rental income not being reported, overclaiming expenses, or claiming improvements to private properties. However, this tax time, the ATO is particularly focused on interest expenses.
Further, the ATO reminds taxpayers of the recent commencement of the residential investment property loan data matching program that spans the income years of 2021–2022 to 2025–2026. Data such as amounts of interest charged and loan repayments from various financial institutions will be used to identify discrepancies in returns lodged.
Work related expenses
Pre COVID 19 , remote work was rare. Working from home was usually available only as a special arrangement to accommodate families in specific cases. However, teleconferencing and telework technology have advanced to the point where some businesses thrive with completely remote teams.
Since working from home is here to stay, it’s important to understand what tax deductions are available in respect of working from home.
The shortcut method which introduced during COVID 19 pandemic which enabled an individual to claim 80 cents per hour is no longer available as of 30 June 2022. New rules will apply in respect of your 30 June 2023 tax return.
The Australian Taxation Office (ATO) has recently updated how taxpayers can claim deductions for costs incurred when working from home post 1 July 2022. There are only 2 options:
- Revised fixed rate method; or
- Actual cost method.
The ATO has already issued Practical Compliance Guidelines outlining its compliance approach on claiming home office expenses i.e., working from home – “PCG 2023/1 Claiming a deduction for additional running expenses incurred while working from home”. Treat these guidelines as the Tax Auditor’s handbook.
These rules are not simple, the eligibility and record keeping requirements will be onerous.
Capital Gains Tax (CGT)
The ATO’s last area of focus for tax time 2023 is CGT.
In addition to the usual disposal of assets such as shares, crypto-assets, managed investments and properties, the ATO will be looking at situations where a main residence or part of a main residence is used to produce income and is then subsequently sold.
This applies where you have rented out all or part of your main residence through traditional means or through the sharing economy (using Airbnb, Stayz, etc), or where a business is run from home.
Please note, the new Sharing Economy Reporting Regime (SERR) begins for transactions made from 1 July 2023 for supplying:
- taxi services including ride-sourcing; and
- short-term accommodation.
