ATO crackdown focuses on rental properties, work claims, CGT

Rental property deductions, work-related expenses and CGT have moved to the top of the ATO hitlist and it warns accountants that landlords, those working from home and investors will be subject to extra scrutiny.

“Within these areas we have identified common mistakes and are particularly focused on addressing these and supporting taxpayers and registered tax agents to get their claims right this year,” ATO assistant commissioner Tim Loh said.

“We expect fewer people will receive a refund or may receive smaller refunds than they were expecting, and more may have tax debts to manage.”

Mr Loh said nine out of 10 rental property owners were getting their returns wrong with errors such as omitting rental income, overclaiming expenses or claiming for improvements to private properties.

With 87 per cent of landlords using tax agents to prepare their returns, the ATO said its analytics systems could now highlight residential property loans along with other rental data.

“We encourage rental property owners and their registered tax agents to take extra care this tax time and review their records before lodging their return,” Mr Loh said.

The ATO was especially concerned to ensure rental property owners understood how to correctly apportion loan interest expenses where part of the loan was used for private purposes.

“You can only claim interest on a loan used to purchase a rental property to earn rental income,” Mr Loh continued. “If your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income.”

On work-from-expenses, the ATO abolished the shortcut method of claiming last July and introduced a fixed-rate method with a 67c-an-hour deduction in a revised regime with more stringent record-keeping requirements. The alternative remains the actual cost method.

But the changes, which involve keeping daily logs of hours worked at home from 1 March, came mid-way through the tax year and are expected to blindside many who claimed during the pandemic.

Mr Loh said more people were now back in offices and taxpayers should avoid the temptation to cut and paste claims from previous years. Complying with the eligibility and record-keeping requirements was essential.

“We continue to see shifts in the way Aussies are working and it’s important to consider whether your claims reflect your working arrangements this year.”

“We know a lot of people are working back in the office more compared to last year.”

“Keeping good records will give you flexibility to choose the right method that suits your circumstances and gives you the best deduction.”

Last year’s tax crackdown on crypto has morphed into a broader concern over CGT events for a wide range of assets.

The ATO said CGT applied to any disposal of shares, managed investments, properties and, of course, crypto.

“To ensure you are meeting your obligations and paying the right amount of tax, you need to calculate a capital gain or capital loss for each asset you dispose of unless an exemption applies,” the ATO said.

Mr Loh said main residences were generally exempt unless “you have used your home to produce income, such as renting out all or part of it through the sharing economy, for example Airbnb or Stayz, or running a business from home”.

Taxpayers were required to keep records of the income-producing periods and the portion of the property used to produce income to calculate capital gains.

“Don’t fall into the trap of thinking we won’t notice if you sell an asset for a gain and don’t declare it,” Mr Loh said.