UBER drivers and property moguls, watch out. The tax man is coming for you.
As the end of the financial year looms, the ATO is drawing up a “hit list” of taxpayers set to receive special attention for fudging their numbers, making dodgy deductions or failing to disclose income.
Mark Chapman, director of tax communications with H&R Block, said people earning extra income through sharing economy platforms like Uber and Airbnb should expect extra scrutiny this year.
Also in the crosshairs will be “creative” accountants who inflate work-related personal tax deductions for their clients, deductions related to investment properties, and working holiday-makers claiming to be residents.
“The main thing to be aware of is if you’re in the sharing economy, driving an Uber or renting an Airbnb, you do have tax obligations,” Mr Chapman said. “There are a surprising number of people who don’t realise. You can also claim tax deductions as well, so it’s not all bad news.”
Mr Chapman said the ATO was obtaining taxpayers’ financial information from third parties such as the banks or the sharing platforms themselves, and matching that data with tax returns to identify people who weren’t complying.
“Thousands of people have already had letters from the ATO, and that will certainly ramp up this coming tax time,” he said.
Mr Chapman said taxpayers who had previously claimed dodgy work-related expenses should watch out this year. “The ATO has a bit of a focus this year auditing work-related expenses they perceive to be excessive,” he said.
“[Being audited] happens in a minority of cases, so it’s not something that’s likely unless your claims are significantly out of line with a typical claim, but it’s probably not worth taking the chance.
“The ATO has very clear benchmarks about what people in particular professions should be claiming. If your claims are significantly outside of the benchmark, increasingly they will ask for substantiation. The ATO can levy a penalty of anywhere between 25-95 per cent of the unpaid tax, depending on your degree of culpability, and there’s also interest, so it can work out quite expensive.”
Assistant Commissioner Kath Anderson said the ATO was using real-time data to compare taxpayers with others in similar occupations and income brackets, to identify higher-than-expected claims related to expenses including vehicle, travel, internet and mobile phone, and self-education.
“Many taxpayers don’t have a good understanding of what deductions they can claim, and believe they can claim for items which they in fact can’t,” she said.
“Some taxpayers even think that you can make a standard claim of $300 without having spent the money. You don’t need receipts for claims up to $300 but you must have actually spent the money, and be able to show us how you worked out your deduction if asked.”
Deductions for work uniforms are a common trap for employees. “It’s a myth that you can claim everyday clothes, for example, black pants and a plain white shirt, even if you only wear them to work, and your employer says you have to,” Ms Anderson said.
“To legitimately claim your uniform, it needs be unique and distinctive, such as a uniform with your employer’s logo, or be specific to your occupation and not for everyday use, like chef’s pants or coloured safety vests.
“It sounds like a small thing, but we aren’t talking about small sums of money here. There are 13 million taxpayers, so if everyone over claims even $100 that adds up to a lot.”
Ms Anderson said with every return scrutinised, there were three “golden rules” for deductions. “One — you have to have spent the money yourself and can’t have been reimbursed, two — the claim must be directly related to earning your income, and three — you need a record to prove it.”
Earlier this month, the ATO warned it would be paying close attention to rental properties located in popular holiday destinations around Australia, after last year identifying a large number of mistakes regarding holiday homes.
“We’ve noticed some people are claiming deductions for holiday homes even where the property is not genuinely being rented out, or genuinely available for rent,” Ms Anderson said.
“There’s no problem with people using their rental property for their holiday, but holiday home owners need to remember they can only claim tax deductions for expenses made during a period when the home is rented out or genuinely available for rent.”
She added that if property owners rent out their property at discounted or “mates’ rates”, they could only charge deductions equal to the amount of rent charged. Ms Anderson said one taxpayer was forced to pay back more than $45,000 in deductions claimed for a holiday home they were renting out to family and friends at below market rate.
“Property owners should be aware that incorrect rental property claims will not go unnoticed,” she said. “Technology enhancements and extensive use of data is allowing us to identify incorrect or suspicious claims. We also have a good idea of the locations likely to be used for holiday homes.”
ELEVEN DODGY DEDUCTIONS
According to the ATO, these are the things you probably can’t claim:
- Trips between home and work. Generally you can’t claim a deduction for these because they’re considered private travel.
- Car expenses for transporting bulky tools or equipment, unless: you need to use your bulky tools to do your job; your employer requires you to transport this equipment; there is no secure area to store the equipment at work.
- Car expenses that have been salary sacrificed.
- Meal expenses for travel, unless you were required to work away from home overnight.
- Private travel, so if you take a work trip that includes personal travel you can only claim the work-related portion.
- Everyday clothes you bought to wear to work (eg, a suit or black pants), even if your employer requires you to wear them.
- A flat rate for cleaning eligible work clothes without being able to show how you calculated the cost.
- Higher education contributions charged through the HELP scheme.
- Self-education expenses when the study doesn’t have a direct connection to your current employment — your future or dream jobs don’t count.
- Private use of phone or internet expenses — only the work-related portion counts.
- Upfront deductions for tools and equipment that cost more than $300. However, you can spread your deduction claim over a number of years. That’s called depreciation.
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Written by Frank Chung, www.news.com.au