Tax time 2022 – what the ATO is scrutinising this financial year

Michelle Bromley CFP®, Director – Strategy and Advice

Each year the ATO issues a press release outlining the key areas they will scrutinise in the current financial year’s tax lodgements.

This year, the ATO will be focusing on:

  • record-keeping
  • work-related expenses
  • rental property income and deductions, and
  • capital gains from crypto assets, property, and shares.

Record Keeping

Our previous article ‘End of Financial Year Tips and Tidy Ups’ highlighted the need to collate your evidence of income and expenditures.

The ATO will take action to deal with taxpayers who try to increase their refund through falsifying records or failing to substantiate their claims.

To claim a deduction in your tax return at the ‘Work-related expense’ section:

  • You must have spent the money yourself and weren’t reimbursed.
  • The expenses must directly relate to earning your income.
  • You must have a record to prove it.

The record would usually be a receipt showing when you spent the money, what you spent it on, who the supplier was and when you paid. Your bank or credit card statement doesn’t have all this information and isn’t sufficient as a substantiation record for the expense.

Work-related expenses

A popular myth is that everyone can automatically claim $150 for clothing and laundry, 5000 km under the cents per kilometre method for car expenses, or $300 for work-related expenses, even if they didn’t spend the money.

However, there is no such thing as an ‘automatic’ or ‘standard’ deduction.

While you don’t need receipts where your total work-related expenses (including laundry expenses) claimed is under $300, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim.

You can only claim a deduction for the proportion of an eligible expense that is work-related use. You can’t claim a deduction for any portion of the expense that was for private use, or if your employer reimburses you for an expense.

For example, you cannot claim all of your travel and accommodation expenses if you extend your three-day conference into a two-week holiday – you must apportion the expenses between the private and work-related components.

Likewise, if your employer reimbursed you for professional association fees, you cannot claim the expense in your tax return. If the ATO suspects that you may have been reimbursed for an expense, they can ask your employer for confirmation.

Some of the work-related expenses you can claim for may include:

  • Travel expenses, such as driving your car expenses between workplaces (e.g. your base of work and visiting a client or another office)
  • Clothing expenses if the clothing is occupation specific, protective or a uniform
  • Tools, equipment
  • Self-education expenses for study connected to your current work activities that maintains or improves the specific skills or knowledge you require
  • Union and professional association subscription fees
  • Home office running costs and work from home expenses, such as phone, data and internet expenses

To claim a deduction for your working from home expenses, there are three methods available depending on your circumstances.

You can choose from:

  • the shortcut method – an all-inclusive rate of $0.80 per work hour only available from 1 March 2020 to 30 June 2022. You must have a record of the number of hours you worked from home.
  • the fixed rate method of $0.52 per hour for each hour you worked from home, plus the work-related portion of phone, data and internet expenses and decline in value of depreciating assets such as home office furniture and computers.
  • the actual cost method – you work out your deduction by calculating the actual expenses you incur to produce your income when working from home, including decline in value of depreciating assets, cleaning expenses, heating, cooling and lighting, phone and internet and computer consumables.

Rental Property Income and Deductions

If you are a rental property owner, make sure you include all the income you’ve received from your rental in your tax return, including short-term rental arrangements, insurance payouts and rental bond money you retain.

The ATO has published a comprehensive Guide for Rental Property Owners that can be accessed here.

Capital gains from crypto assets, property, and shares

If you dispose of an asset such as property, shares, or a crypto asset, including non-fungible tokens (NFTs) this financial year, you will need to calculate a capital gain or capital loss and record it in your tax return.

Generally, a capital gain or capital loss is the difference between what an asset cost you and what you receive when you dispose of it.

If you made a crypto loss, you can’t offset this against your other taxable income. You can only offset capital losses – including crypto losses – against capital gains. If you don’t have any capital gains to offset this financial year, capital losses can be carried forward to offset capital gains in future years.

Conclusion

You must declare all the income you receive from your employment or business activities, investments, super pensions and annuities, government payments and any overseas income. Some forms of income are ‘non-assessable, non-exempt’ income, such as the taxed or tax-free components of super pensions drawn by taxpayers over age 60.

The ATO will receive most of your income information from your employers and financial institutions and use it to pre-fill most income information in your tax return when you use my.gov.au to lodge online. You should still check the information to make sure it is complete and correct, and to manually enter any other income not captured.

This data collection process also alerts the ATO to crypto trading activities.

Understanding what can be claimed as an expense and having receipts to substantiate claims is important, as penalties may apply for getting things wrong.

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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