Ahead of the financial year-end, the Australian Taxation Office (ATO) has revealed that it will be focusing on four critical areas for Tax Time 2022. Most importantly, rental property income and deductions are vital areas on the list.
Record-keeping, work-related expenses, and capital gains from crypto assets, property, and shares are the other three that feature on ATO's hit list.
Tim Loh, Tax office Assistant Commissioner, explained that the ATO has targeted these four key areas because taxpayers commonly make mistakes here when submitting their returns.
By focusing on these priority areas, ATO aims to enable the Australian community to reap the benefits of a robust tax system. It hopes to achieve its goal by implementing appropriate levels of scrutiny on accurate reporting of income and deductions and ensuring that Aussie taxpayers lodge the right way the first time.
According to Mr Loh, taxpayers should rethink their claims and follow three critical rules to avoid making mistakes when filing returns. These steps include:
- The money should have been spent on yourself, and you were not reimbursed.
- If the expense was for a mix of private use and producing income, you can only claim the portion related to generating revenue.
- You should be able to prove it with impeccable record-keeping.
How to Tackle Critical Areas During Tax Time 2022:
Rental Property Income and Deductions
If you're a rental property owner, you should include all the income earned from your rental when filing your tax returns. This includes your short-term rental arrangements, rental bond money retained by you, and insurance payouts.
Maintaining accurate records is critical since all rental income and deductions must be manually entered.
Handy hints for Aussies renting out their property include:
- Keep correct records from the start
- Carefully identify which expenses can be claimed as deductions
- Check if you have to pay tax instalments throughout the year
- Declare all your rental-related income when doing your returns
- Watch out for implications of capital gains in case of sale.
Note that you generally cannot claim deductions from investment properties that are not rented or available for rent, such as your holiday home, as it does not generate rental income.
Many rental property owners hire the services of a registered tax agent to help with their tax affairs, and this is a good practice.
In case the ATO notices any discrepancies, it may delay the processing of your refund as it may need to get in touch with you or your registered tax agent to implement the necessary corrections.
The ATO also has the authority to ask you to provide supporting documentation if you make any claim after your notice of assessment issues.
You can visit the official site ato.gov.au/rental and download a PDF guide for details on treating your rental income and expenses.
Capital Gains from Shares, Property, and Crypto Assets
Those selling assets such as property, shares, or crypto assets, including non-fungible tokens (NFTs) during this financial year, have to work out the capital gain or capital loss and record it in their tax returns.
Generally, your capital gain or capital loss is the difference between what the asset costs you at the time of purchase and what you received at the time of disposal.
According to Mr Loh, crypto is a now popular type of asset. Per data, many Australians are buying and selling or exchanging digital coins and assets. Against this backdrop, taxpayers need to understand the implications of their tax obligations.
You cannot offset your crypto losses against your wages or salary. This year, ATO expects to see more capital gains or capital losses reported in tax returns.
Visit ato.gov.au/crypto for detailed insights on tax treatment for cryptocurrencies.
Organising Records
Some taxpayers deliberately attempt to increase their refund, falsify records, or cannot substantiate their claims. ATO has issued a strict warning that this year, firm action will be taken against those found indulging in these practices and consequently making unfair gains compared to the sincere taxpayers.
According to the ATO, many mistakes occur when people rush to lodge their tax returns in July, forgetting to include dividend incomes, interest from banks, payments from government agencies, and private health insurance.
In most cases, this data automatically gets pre-filled in the tax returns by the end of July, making the returns process quicker, easier, and more accurate.
If you're in a hurry to lodge earlier, take some time to include all your income manually.
ATO advises checking that your employer has marked your income statement as 'tax ready' and if your pre-fill is available in myTax before lodging. This prevents the need for future amendments and minimises delays to your refund.
You can check the available pre-fill information and lodging worthiness in the ATO app for Tax Time 2022.
It's a good idea to organise the income and deductions records you've maintained throughout the year for a smoother lodging process and to claim your deductions successfully.
ATO receives and matches lots of information on rental and foreign-sourced income and capital gains events involving shares, crypto assets, and property. However, ATO does not pre-fill this information for you.
Expenses Related to Your Work
With many people shifting to the hybrid working model since the pandemic last year, one in three Aussies claimed work-from-home expenses in their tax returns.
In cases where this arrangement continues, ATO expects to see a corresponding reduction in car, travel, parking, tolls, and other work-related expenses.
Depending on your situation, you can claim your work from home expense deductions using either the shortcut method (all-inclusive), fixed-rate method, or actual cost method, as long as you meet the eligibility and record-keeping requirements.
For more information to get your work-related expenses deductions right, visit ato.gov.au/deductions.
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