What is in the ATO’s “sights” this 2023 tax time?

Each year, the ATO takes a closer look at various areas and focus their audit activity there. For the 2023 financial year, the ATO has shared what its key focus areas are: 

• Rental property deductions 
  
• Work-related expenses; and 
  
• Capital gains tax. 
  

They’ve found that within these areas there are many common mistakes made by taxpayers and their agents when preparing returns. This year, the ATO says they are “focused on addressing these and supporting taxpayers and registered tax agents to get their claims right this year.” 

Rental Property Deductions 

According to the National Tax & Accountant’s Association (NTAA): “The ATO’s review of income tax returns shows 9 in 10 rental property owners are getting their returns wrong, and often sees rental income being left out, or mistakes being made with property related deductions, like overclaiming expenses or claiming for improvements to private properties. 

The ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was re-financed with some private purpose).” 

We are often unravelling these “muddied” loans to determine the true deductible component. We may ask more detailed questions (take reasonable care) in order to be satisfied that your tax return will stand up in the event of an audit. 

The ATO has recently added a residential property loans data matching program to their extensive data matching arsenal. 

Work-related Expenses 

There have been changes to the way working from home deductions are calculated and also changes to the record keeping requirements. The ATO will be focusing on ensuring taxpayers understand these changes. They expect working from home claims to be less than previous years as more workers return to the office for longer periods. The ATO compares your deductions to others in the same role and income band as you to determine when work related expenses are outside the norm. Large expenses outside the norm would be flagged for audit. Here at Aegis, we ask more questions to understand your deductible expenses, especially if your expenses are outside the norm that we see with other clients. 

Capital Gains Tax 

With this final area of focus for 2023, the ATO is reminding tax payers that things such as the sale of your home (PPR) and even trading cryptocurrency (even if you don’t cash out to Australian dollars) are capital gains events and are required to be reported in your tax return. Yes, your PPR is often exempted from capital gains tax, however it still needs to be calculated and reported, along with the exemption noted in your return. The ATO is given information about changes to titles, and therefore if we don’t report the sale of a property, they question why. 

If you would like an estimate of capital gains tax implications, at any time through the year, just get in touch, and we can work through the calculations ahead of preparing your tax return. 

Should you need any assistance with the above, please get in touch with us.

Kind regards
The Team at Aegis