After two years of significant spending by the Government amid the COVID-19 pandemic in providing financial assistance to businesses and individuals, the Government will now be looking at ways to boost revenue and recoup the money spent to support the economy through the pandemic. With increased funding being provided to the ATO, we can expect to see a rise in the level of review and audit activity in areas the ATO believe mistakes are being made by taxpayers.
The ATO have announced four key focus areas for individuals for the 2022 Financial Year.
- Record-keeping
- Work-related expenses
- Rental property income and deductions, and
- Capital gains from crypto assets, property and shares
Record-Keeping
Appropriate records must be kept to substantiate income and deductions included in Income Tax Returns. The ATO has a great deal of data-matching capabilities, so they have the ability to check and confirm income and deductions have been properly reported. The ATO will be taking firm action to deal with taxpayers who are gaining an unfair advantage from not being able to substantiate their claims.
Work-related expenses
With many people changing to a hybrid working environment since the start of the pandemic, one in three tax returns have involved claims relating to working from home. To include a working from home deduction you must prove that sufficient nexus to your work is established and the required records are kept and available where needed. If your working arrangements have changed compared to prior income years you cannot simply claim the same work-related deductions. If expenses were used for both work-related and private use, you can only claim the work-related portion of the expense.
Rental property income and deductions
All income received from a rental property should be declared in your Income Tax Return, including short-term rental arrangements, insurance payouts and rental bond money that has been retained.
Interest deductions must be properly calculated, particularly in relation to redraw amounts on the home loan if the funds were used for another purpose.
Capital gains from crypto assets, property and shares
The ATO is expecting to see more capital gains or capital losses reported in Income Tax Returns this year in relation to crypto assets, including non-fungible tokens (NFTs). You must remember that crypto losses cannot be used to offset against salary and wages income, they can only offset other capital gains or be carried forward to future income tax years.
The ATO receives a lot of information on rental income, foreign sourced income and capital gains events involving shares, crypto assets or property but doesn’t necessarily make all this information available to taxpayers and accountants via the pre-fill data. The onus is on the taxpayer to correctly disclose and report their income to the ATO.
With data matching programs expanding and advances in technology enabling the data to be analysed more easily, the risk of the ATO checking your information by way of a review or audit is always increasing. The Government will likely rely on increased ATO audits and reviews to boost revenue rather than tax reforms or increases to tax rates. The best way you can prepare your business for an ATO review or audit should it arise is to ensure you have retained all relevant documentation in relation to your business activities.
For More Information
For more information on the key audit areas above, please contact the Archer Gowland Redshaw office on (07) 3002 2699 | info@agredshaw.com.au
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