The Australian Taxation Office (ATO) has announced its priorities for this tax time.
In the tax time 2024, the ATO will be taking a close look at the following common errors that taxpayers usually make:
- Failing to include all income when lodging
- Inflating claims for rental property
- Incorrectly claiming work-related expenses
These are the areas where errors frequently occur, and while many mistakes are unintentional, some are deliberate. It’s crucial to invest the effort in ensuring your return is accurate.
According to the ATO Assistant Commissioner, the ATO is committed to assisting taxpayers in accurately completing their lodgments on the first try.
Rental Properties
Rental properties remain under close scrutiny by the ATO. Recent data indicates that 9 out of 10 rental property owners are misreporting their income tax returns.
The ATO frequently observes landlords making errors, particularly regarding deductions for repairs and maintenance on rental property. As a result, the ATO has decided to monitor this aspect closely.
This year, the ATO is especially careful regarding any claim that may have been inflated to offset rises in rental income to garner a larger tax advantage.
While general repairs and maintenance on rental properties qualify for immediate deduction, expenses categorised as capital (such as initial repairs on newly acquired properties or substantial improvements made during ownership) do not.
For instance, replacing a damaged carpet or fixing a broken window qualifies as a deductible general repair. However, undertaking a complete kitchen renovation constitutes a capital improvement and is deductible over time as capital works.
Given the complexity of reporting rental income and deductions, many individual property owners opt to engage a registered tax agent to assist with tax preparation.
Providing detailed records to your registered tax agent enables them to accurately prepare your tax return, ensuring you claim all eligible deductions while avoiding erroneous claims.
If you are looking for the best tax accountants in Melbourne, reach out to Clear Tax Accountants, a team of experienced accountants who will make this tax season easier for you.
Work-related expenses
In 2023, over 8 million individuals filed claims for work-related deductions, with nearly half of them linked to working-from-home arrangements.
Last year, the ATO revamped the fixed rate method for calculating deductions for working from home. These revisions aimed to broaden the scope of eligible expenses, increase the rate, and adjust record-keeping requirements.
These changes have now been fully implemented for the current financial year. Consequently, it’s essential to maintain detailed records to support your claims, similar to any other deduction.
To utilise this method effectively, one must retain records indicating the actual hours worked from home (such as a calendar, diary, or spreadsheet), along with evidence of additional running costs incurred for deduction purposes (like copies of electricity or internet bills).
Deducting expenses for working from home offers the flexibility of calculating using either the actual cost or the fixed rate method. Maintaining accurate records empowers you to choose the method that suits your circumstances and claim the entitled expenses.
While it might be tempting to replicate last year’s working-from-home claim, doing so could lead to inquiries from the ATO. Claims may be disallowed if eligibility criteria are not met or if proper records aren’t maintained.
It’s crucial to follow the three golden rules when claiming any work-related expense: the expenditure must have been personally incurred and not reimbursed, it must directly contribute to earning income, and you must possess a record, typically a receipt, to prove it.
Wait to lodge!
The ATO is cautioning against rushing to file your tax return on July 1st.
If you’ve earned income from multiple sources, it’s advisable to wait until this information is pre-filled in your tax return before submitting it.
The ATO often encounters errors in July when individuals forget to include interest from banks, dividend income, payments from other government agencies, and private health insurance.
For most individuals, this data will be automatically pre-filled in their tax return by the end of July. This simplified process not only saves time but also enhances accuracy.
Lodging your return in early July increases the likelihood of it being flagged as incorrect by the ATO. While some may prefer to tick off their tax return early and be done with it for the next 12 months, the best approach to ensure accuracy is to wait a few weeks before filing.
Before lodging, you can verify if your employer has labelled your income statement as ‘tax ready’ and check if your pre-filled information is available in myTax. This step can prevent the need for later amendments, which could lead to unnecessary delays.
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