Tax time is near, but don’t lodge too early ATO warns, as it eyes work-related expenses & rental deductions.

The ATO says one of the major causes of delays at tax time is people lodging before they have all their income information.

As 14 million Australians begin pulling together their records for tax time, the Australian Taxation Office (ATO) is advising people to wait until the end of July before lodging returns, in order to minimise errors.

This year the ATO will again be eyeing unsubstantiated, or higher-than-expected, work-related expense tax deductions and claims on rental properties, according to assistant commissioner Karen Foat.

In the 2017-18 financial year, there were almost 9 million taxpayers claiming a total of $21.7 billion in work-related expenses. This includes claims relating to cars, travel, clothing, mobile phone and internet use and self-education expenses. This year, the ATO expects that figure could rise as more people work from home due to the coronavirus pandemic.

The ATO has also warned that members who took money out of their superannuation accounts without meeting the eligibility requirements could face fines and prosecution. The Morrison Government’s COVID-19 early super access scheme allows eligible members to withdraw $10,000 this financial year and another $10,000 in the 2021 financial year.

Already, about $15 billion has been paid out to almost 2 million Australians.

Errors made in haste

Ms Foat said one of the major causes of delay at tax time was that each year one-in-five people lodged before they had all of the information about their income.

“Every year there are hundreds of thousands of returns that we either have to delay or send a bill for [later on] because they [taxpayers] left out some income,” Ms Foat said. She urged people to check that their employer had finalised the information in their income statement and it was marked as ‘tax ready’ before they lodge. “Other information from banks, health funds and government agencies will also be automatically inserted into your tax return,” she said. “For most people this will happen by the end of July.”

Tax shortcut there for those who want it

The Australian Taxation Office (ATO) has a new method which will allow people to claim 80 cents per hour for all their running expenses, rather than needing to calculate costs for specific running expenses.

The change will apply from March 1 to June 30, and will likely be extended as the ATO is currently reviewing the arrangements for the next financial year as the COVID-19 situation progresses. Ms Foat indicated it was likely the scheme would be extended, saying there would be an official announcement before June 30.

“We are at the moment reviewing whether and how long we would continue it [the shortcut] for,” she said. “As long as the government direction is that people should work from home if they can, then we will be offering this [shortcut] method.”

Taxpayers still have the choice to use the old method, known as the 52 cents per work hour method, to calculate the work-related portion of specific items such as phone and internet expenses. But under the 52 cents method, taxpayers will need to apportion their use between what is personal and what is work-related, and they must do so on “a reasonable basis”.

Tax advisers have warned people to carefully consider whether they should opt for the 80 cents method as, while it is simpler and involves less record keeping, it may result in lower deductions.

Ms Foat said there were many “myths” circulating this year and a common question the ATO was being asked as more people work from home due to COVID-19 restrictions was whether they could now classify their home as their ‘office’ and count travel to the office. “People think if they work from home most of the time and need to go to office occasionally they can claim the home to work trip,” she said. “In fact your home is still your private residence and so you can’t claim home to work travel.”

Australians were also asking if they could claim items such as children’s education expenses, as well as tea, coffee and toilet paper which used to be supplied by employers in the office. Again, the answer was ‘no’, Ms Foat said.

Work-related expenses you can and cannot claim

The ATO would also be watching for over-claiming, particularly if claims in one area go up but are not logically offset in another. “For example, if we see a big work-from-home claim and the laundry claim looks the same, the question we will ask is, ‘if you’re working from home are you really wearing your uniform?’,” she said.

Work-related travel was once again another area of focus. “Almost everyone’s work related travel has gone down — we are doing things a lot more virtually these days,” Ms Foat said, noting there may be some people who had just moved into a job where travel was high during first three quarters of the year. “If your claims look really high compared to other people in the same income level and same occupation, and perhaps even in the same location, we might start to ask questions about that,” Ms Foat warned.

The major reason the ATO knocked out claims was that people did not keep a receipt or some sort of evidence that backs their claim. While certain work-related expense claims under $300 did not require receipts, Ms Foat said “you still need to be able to tell us what it was for and how much they cost”. “And when it comes to work-related car travel, you still need to show us how you came to work out the number of kilometres you are claiming. “We often find people saying it’s a work trip they do everyday, five-days-a-week, 52 weeks a year, but forgot to take out the four weeks of holidays.”

High-than-expected rental deductions again in the firing line

More than 2.2 million Australians claimed $47 billion in rental deductions in 2017-18.

The ATO audited more than 1,500 taxpayers that year over rental claims and handed out penalties totalling $1.3 million. Ms Foat said the ATO had also conducted thousands of reviews through phone calls and other methods and found, when it came to rental income and deductions, a lot of people misunderstood the rules. She said often people omitted rental income for short-term rentals such as Airbnb. “You do need to declare your income from those shorter-term rental arrangements,” Ms Foat said.

Another common problem was people refinancing the loan on their rental property to buy a boat, take holiday or do a private home renovation, and then claiming the whole amount of interest instead of just the part that applies to the rental property.

Australians paid $15b under COVID early super access

Figures released by the Australian Prudential Regulation Authority on Monday show, as at June 7, 2.12 million applications had been lodged for the Morrison Government’s COVID-19 early super access scheme. Already $14.8 billion has been withdrawn. The figures shows 1.98 million account holders were paid out by funds an average amount of about $7,500.

To be eligible, people must have had their working hours reduced by 20 per cent or more, or be sole traders whose turnover has fallen by at least 20 per cent.

Early on, the ATO was not conducting income checks before approving withdrawals, allowing some fraudsters to steal Australians’ superannuation through the scheme.

Ms Foat said the ATO’s system had detected “a small amount of fraud and some changes were put in place to prevent that going forward”.

A message from the team at Highview

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Source: Article written by ABC Business Reporter Nassim Khadem