ATO flags key focus areas this tax time

The Australian Taxation Office (ATO) has announced it will be taking a close look at three key areas where taxpayers make common mistakes this tax season.

Incorrectly claiming work-related expenses, inflation claims for rental properties and failing to include all income when lodging will all be focus areas for the ATO come end of financial year.

ATO assistant commissioner Rob Thomson said the ATO was focused on supporting taxpayers to get their lodgment right the first time.

"These are the areas that people are most likely to get wrong, and while these mistakes are often genuine, sometimes they are deliberate. Take the time to get your return right," Thomson said.

The ATO said in 2023 more than eight million people claimed a work-related deduction, and around half of those claimed a deduction related to working from home.

Last year, the ATO revised the fixed rate method of calculating a working from home deduction to broaden what is included, increase the rate, and adjust the records you need to keep.

These changes are in full effect this financial year, meaning you must have comprehensive records to substantiate your claims as you would for any other deduction.

"Deductions for working from home expenses can be calculated using the actual cost or the fixed rate method, and keeping good records gives you the flexibility to use the method that works for you, and claim the expenses you are entitled to," Thomson said.

"Copying and pasting your working from home claim from last year may be tempting, but this will likely mean we will be contacting you for a 'please explain'. Your deductions will be disallowed if you're not eligible or you don't keep the right records."

Rental properties continue to remain in the ATO's sights. ATO data found nine out of 10 rental property owners were getting their income tax returns wrong.

"We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we're keeping a close eye on this," Thomson said.

"This year, we're particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit."

Performing general repairs and maintenance on a rental property can be claimed as an immediate deduction. However, expenses which are capital in nature (like initial repairs on a newly purchased property and any improvements during the time you hold the property) are not deductible as repairs or maintenance.

"You can claim an immediate deduction for general repairs like replacing damaged carpet or a broken window. But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works," Thomson said.

"We encourage rental property owners to carefully review their records before lodging their return and take care to ensure they are claiming deductions correctly."

The ATO also reminded taxpayers against rushing to lodge their tax return on July 1.

"We see lots of mistakes in July where people have forgotten to include interest from banks, dividend income, payments from other government agencies and private health insurers," Thomson said.

For most people, this information will be automatically pre-filled in their tax return by the end of July.

"By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO," Thomson said.

"We know some prefer to tick their tax return off the to-do list early and not have to think about it for another 12 months, but the best way to ensure you get it right is to wait for just a few weeks to lodge."