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Tax time in Australia: ATO reveals three common mistakes that could cost you

As tax time fast approaches, the three big ticket items in the ATO’s sights have been revealed.

The Australian Taxation Office (ATO) this week announced it would be cracking down on taxpayers who incorrectly claimed work-related expenses, inflated claims for rental properties and failed to include all income when lodging.

These are among the most common mistakes taxpayers make — and while they are often genuine, sometimes they are deliberate, the ATO said.

Last year, the tax office changed the way taxpayers claimed working-from-home deductions when it abolished the $0.80/hour “shortcut” rate and the $0.52/hour fixed rate to calculate deductions from July 1, 2022 in favour of a new fixed rate of $0.67/hour.

The changes came with tighter record-keeping requirements and broadened the items included in the rate.

In 2023, more than eight million people claimed a work-related deduction, and about half of those claimed a deduction related to working from home.

With last year’s changes in full effect this financial year, the ATO is warning taxpayers to ensure they have comprehensive records to back up their claims.

This means using records, such as a spreadsheet or calendar, to prove the hours worked from home, and keeping bills to prove the additional costs incurred from doing such.

“Deductions for working from home expenses can be calculated using the actual cost or the fixed rate method, and keeping good records gives you the flexibility to use the method that works for you, and claim the expenses you are entitled to,” ATO assistant commissioner Rob Thomson said.

“Copying and pasting your working from home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’.”

The ATO’s golden rules for claiming a work-related deduction

  • You must have spent the money yourself and were not reimbursed,
  • the expense must directly relate to earning your income, and
  • you must have a record to prove it.

Rental properties also remain a hot topic for the tax office, with its data revealing nine out of 10 rental property owners get their income tax returns wrong.

“We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we’re keeping a close eye on this,” Thomson said.

“This year, we’re particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit.”

A common mistake rental property owners made last year was confusing general maintenance and capital expenses.

“You can claim an immediate deduction for general repairs like replacing damaged carpet or a broken window,” Thomson said.

“But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works.”

If in doubt, turn to a registered tax agent for assistance, Thomson said.

A waiting game

While many taxpayers may be keen to lodge their return as soon as possible, the tax office has warned against rushing in on July 1.

People who receive income from multiple sources need to wait until it is pre-filled before lodging.

For most people, this will automatically be pre-filled by the end of July, saving them time and helping them get their return correct.

“We see lots of mistakes in July where people have forgotten to include interest from banks, dividend income, payments from other government agencies and private health insurers,” Thomson said.

“By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO.

“We know some prefer to tick their tax return off the to-do list early and not have to think about it for another 12 months, but the best way to ensure you get it right is to wait for just a few weeks to lodge.”

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