The ATO has announced what areas they will be cracking down on when reviewing Income Tax Returns (ITRs) in 2023. It is essential that you understand what the ATO will be looking for so that you can declare your income and deduction information correctly in your upcoming tax return.
In 2023, the ATO is focusing on the following 4 key areas:
- Rental Property Deductions;
- Work related expenses;
- Capital Gains Tax (CGT); and
- Record Keeping.
1. Rental Property Deductions
The ATO’s review has found that rental income is either not declared at all, or mistakes are being made when making property rental deductions (e.g. overclaiming expenses, or claiming for improvements to private properties).
The ATO is particularly focused on interest expenses and ensuring that the interest claimed only relates to the investment property, and must be apportioned if part of the loan is for private purposes.
Additionally, if the property hasn’t been available for rent for the whole financial year, then deductions will have to be apportioned.
The ATO has recently implemented a new residential investment property loans data matching program, where they will be able to compare the information the taxpayer has claimed in their tax returns to information collected from Banks and other lenders.
For further information on what rental property deductions you could consider this tax time, please download our Investment Property Checklist.
2. Work Related Expenses
It is important to consider whether your claims reflect your current working arrangements, so don’t be tempted to just copy and paste your prior year’s claims. Some key points to remember include:
- You must have incurred the cost and you weren’t reimbursed;
- The expenses must relate directly to your income; and
- You must have a record to prove your claims (e.g. a receipt or bank statement record).
This year, the ATO is particularly focused on ensuring taxpayers understand the changes to the Working From Home (WFH) deduction methods and are able to support their claims.
Methods for claiming WFH deductions changed from 1 July 2022. For the 2023 financial year, you can claim either:
- A revised fixed rate method of $0.67 per hour worked from home. This includes electricity, gas, phone, internet, computer consumables, and stationery. You can also claim a separate deduction for depreciation of assets such as office furniture and technology. You are no longer required to have a separate dedicated home office; or
- An actual cost method, calculating the actual expenses incurred as a result of WFH, claimed on the percentage of your office area
It is important to note that you must keep a daily log of hours worked at home to be able to claim any WFH deductions.
For further information about your WFH deductions, read our article ‘Changes to WFH Tax Deduction Methods – What you need to know‘.
3. Capital Gains Tax
Capital gains tax (CGT) comes into effect when you dispose of assets such as shares, crypto, managed investments, or properties. To ensure you meet your obligations and are paying the right amount of tax, you need to calculate a capital gain or loss for each asset you dispose of (unless an exemption applies).
Make sure you capture all costs incurred to help reduce any capital gain you make on the sale of an asset.
Generally, your main residence will be exempt from CGT. However, if you have used your home to produce income, such as renting it out (including renting on a digital platform such as Airbnb or Stayz) or running a business from home, then CGT may apply.
For more information about whether you will pay CGT on your rental property, read our article ‘Do I Pay Capital Gains Tax (CGT) on my Rental Property?‘.
The ATO is reminding taxpayers that in order to enable CGT to be calculated, it is important to keep up to date records of the income-producing period and the portion of the property used to produce income.
4. Record Keeping
As per previous years, the ATO has made it quite clear that they will take firm action if they find that taxpayers are deliberately trying to increase their refund, falsify records, or they do not have the ability to substantiate their claims.
What Action Can I Take To Reduce My Risk of an ATO Audit?
To reduce your risk of an ATO audit, we recommend that you:
- Keep good records;
- Declare all of your income;
- Only claim what you are eligible for; and
- Contact us to assist you. Whilst this won’t mitigate the risk of an ATO review completely, it gives the ATO a level of confidence that the information being lodged is accurate and substantiated.
How can Davidsons support me with my ITR?
There are a number of different ways that we can support you when lodging your tax return:
1. Download our Income Tax Return Checklist
We have created a comprehensive checklist that can help you identify what information you should include in your 2023 Income Tax Return. Click the link to download our Income Tax Return Checklist for Individuals.
Book an Appointment with Janine Roberts
Janine Roberts is our Personal Income Tax Return Specialist and she is here to support you with all of your ITR queries.
To book an appointment with Janine, please contact our offices on 03 5221 6399 or at email@example.com.
This article was written by Personal Income Tax Specialist Janine Roberts.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.