Updated June 2025

Tax season is approaching, and the Australian Taxation Office (ATO) has already signalled the areas it will scrutinise closely this year.

Each year, the ATO announces key focus areas or ‘hit lists’ where it will concentrate its compliance efforts. These are typically areas where taxpayers have made mistakes or attempted to claim deductions they were not entitled to in previous years.

Understanding the ATO’s tax time priorities for 2024-25 can help you prepare an accurate return and avoid unwanted attention. This article explains what’s on the ATO’s hit list for this year and shares practical tips to help you prepare your 2025 tax return.

What’s the ATO looking at this year?

Claiming deductions for household items and personal expenses

In previous years, some taxpayers have tried to claim household items and personal expenses as work-related expenses. In 2024-25, the ATO is cracking down on these claims.

The ATO has specifically highlighted that claims for household items like air fryers, coffee machines, and kitchen appliances, as well as personal expenses like travel to and from work and childcare fees, fail the ‘pub test’ and don’t qualify as legitimate work expenses.

For an expense to be deductible, it must be directly connected to earning income. It must not be private or domestic in nature.

Work from home and home office expenses

Work from home and home office-related deductions continue to be a focus area. The ATO is carefully examining these claims, particularly where deductions appear excessive or unusual compared to others in similar occupations.

Remember that if you use the $0.70 per hour fixed rate method, you can’t separately claim expenses for internet, phone, electricity, or stationery, as these are already included in the hourly rate.

The most important thing to remember is that you must retain evidence of all your expenses, so good record-keeping habits are essential.

Types of evidence to substantiate work-related claims

These can include:

Timesheets and work rosters to show your work from home hours (you may want to record your hours in our work from home deductions diary)
Proof of your rent, rates or mortgage payments if you’re running a business from home
Mobile phone and internet bills (note: you can’t claim these separately if you choose to claim the WFH fixed rate)
Receipts for dry cleaning and laundering uniforms
Payslips for proof of union fees
Motor vehicle logbooks if you’re claiming the 85 cents-per-kilometre flat rate for journeys up to 5,000 kms (you can use our 5,000km diary to record your trips).

Check out our article, ‘What can I claim on my 2024-25 tax return?’ for more information about possible deductions.

Areas of ongoing ATO focus

While not specifically highlighted in the 2025 announcements, the following areas remain under close ATO scrutiny every year:

Rental property income and deductions

After finding errors in 90% of rental property returns in previous audits, the ATO continues to focus heavily on property investors.

You must declare all income you receive from your rental property. This includes short-term rental arrangements, insurance payouts and rental bonds you’ve retained.

Areas that typically receive ATO attention include:

Holiday homes claiming rental status for times the property was not actually available for rent
Immediate claims for the ‘repair of existing defects’ in a newly purchased rental property, as opposed to ‘capital improvements/renovations’ which are claimed over several years
Excessive interest expense claims
Property owners claiming borrowing costs on their family home as well as their rental property (i.e., ‘double dipping’)
Incorrect percentages of rental income attributed to one party of a joint-owned property.

If you earn rental income, you must keep all invoices, receipts and bank statements relating to your property expenses. You’ll also need proof that your property was available for rent (e.g. copies of online rental listings or advertisements) to support your claims.

Check out our investment property checklist for eligible deductions.

Income from the sharing economy

If you’re among the many Australians earning an income from a sharing service like Airbnb or Uber, the ATO has data-matching programs to ensure you’re correctly declaring your income.

Capital gains on cryptocurrency and investments

Capital gains on cryptocurrencies and investments continue to be on the ATO’s radar, so it’s important to understand the tax implications. If you’ve made capital gains from the sale of crypto assets, ensure that you accurately calculate and report these gains in your tax return.

The ATO has a data matching program to identify taxpayers who fail to disclose their crypto activity correctly.

If you buy, sell or hold other investments, such as property or shares, make sure you disclose all related activity. This includes dividend income and gains or losses made on any asset sales.

If you buy and sell assets regularly, you may be considered a trader, which changes the taxation treatment of any gains or profits you make on your asset sales.

If you’re unsure how to treat your investment activity in your tax return, seek professional guidance.

Occupation-specific deductions

The ATO regularly reviews claims that don’t align with typical patterns for specific occupations. This includes tools, protective clothing and vehicles when there’s no clear work-related purpose.

Best practices for completing your tax return

Complex tax returns can be tricky, and no one wants to find themselves on the ATO’s radar. Regardless of what’s on the ATO’s hit list for this year, here’s what you should be doing to ensure your tax return is compliant:

Keep thorough and organised records

Good record-keeping is your best defence against ATO inquiries:

Maintain digital or physical copies of all receipts and invoices
Use our WFH deduction diary to track working hours at home
Keep a vehicle mileage logbook if claiming car expenses
Remember that your record-keeping system doesn’t have to be high-tech or complex – it can be as simple as an Excel spreadsheet
Make sure you retain all your records for the required five years.

Understand the rules for deductions

For a deduction to be legitimate, it must:

Be directly related to earning your income
Not be a private or domestic expense
Not be reimbursed by your employer
Be supported by records.

Don’t just claim and hope for the best! If you’re unsure if a deduction meets the ATO’s guidelines, check in with your accountant.

The ATO’s deduction guidelines contain more detailed information on the various deduction classifications.

Report all your income

The ATO has sophisticated data-matching capabilities. Ensure you declare:

All employment income, including from casual or part-time work
Investment income (dividends, interest, capital gains)
Sharing economy income
Foreign income
Cash payments received.

Be honest about your claims

While it might be tempting to inflate deductions or round up numbers, this can trigger ATO attention. Only claim what you’re entitled to and can substantiate with evidence.

How Davidsons can help you with your tax return

Tax rules change frequently, and everyone’s situation is different. Working with a tax professional helps ensure you claim everything you’re entitled to while complying with tax laws.

Our personal income tax return specialists can support you virtually or at our Geelong or Torquay offices.

You can reach out to us by:

completing an enquiry form
calling us on 03 5221 6399
emailing via info@davidsons.com.au.

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Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.

What’s on the ATO’s tax return hit list for 2024-25?