Taxpayers brace for stricter ATO scrutiny as tax season begins

It is that time of year when all taxpayers begin what is set to be an awkward but very important dance with the Australian Tax Office as they fill out and submit their tax returns.

The main thing to be aware of this year is that the somewhat forgiving attitude that the ATO adopted during the pandemic has been replaced by a much more hard-bitten determination to catch up for lost time and to ensure that tax returns are filled out correctly.

The “good old days” of copying and pasting last year’s return or fudging deductions are fairly pointless now that the ATO has exceptionally good data matching capabilities but that hasn’t stopped a lot of people from testing their arms in the past.

Up to 90% mistake rate

The ATO estimates that as many as nine out of ten landlords make mistakes or illegitimately claim extra rental deductions as part of their annual tax return and they are warning that this year these claims will be rigorously tested for accuracy.

ATO assistant commissioner Rob Thomson said that scrutiny will be applied to a range of items including rental property deductions, dodgy work expense claims and undeclared income when officials start the mammoth task of processing the 20 million tax returns that are expected to be lodged after July 1.

Patience required – with an October deadline

One thing that is abundantly clear is that you need to be patient but not lazy to complete the ATO dance correctly this year.

There is no point in guessing what a deduction should be before you have all of the information and for property and share market investors, that information often comes later in July and perhaps even later.

Similarly, information from employers, banks and health insurers is progressively added to the online system, which can really expose those filing too early with mistakes.

People who work in the gig economy or invest in cryptocurrencies should be particularly careful, with data matching now very good on what used to be fairly obscure sources of income and capital gains.

The ATO’s data matching program now includes more information from platforms like Uber and Airbnb, insurance companies, cryptocurrency transactions, novated leases for cars and rental bonds.

Last year alone the ATO “adjusted” almost half a million tax returns due to errors found through data matching.

Late fines are growing

While it is good to wait until you can be precise with all of the numbers, there is also an increasingly “hard” deadline of October by which the tax return needs to be submitted, with many tax agents warning their clients that fines of up to $1500 can be handed out for late returns.

Usually those who fail to file by October get an initial fine of $313 which rises to $1565 if the return is still not lodged.

There is some more flexibility if you are filing through an agent or accountant, who can arrange filing dates into 2025 for their clients.

Watch out for working from home changes

Among the many changes this year are for the more than 8 million taxpayers who claim a work-related deduction, with around half of those relating to working from home.

There have been rule changes following the pandemic and taxpayers must be very careful to have comprehensive records to substantiate anything they claim.

Those records need to show the number of hours worked from home and the additional costs of that, which might include internet and power bills.

That makes the practice of copying and pasting work from home deduction claims from previous tax returns a really bad idea that is highly likely to land you in trouble, particularly if the supporting paperwork is not thorough.

Under the revised fixed-rate method for remote work that came into force last year, taxpayers can claim at a fixed 67 cent hourly rate, which requires good records and has greatly diminished many working from home claims from the highs set during the pandemic.

One thing to watch carefully is that you can’t claim expenses like mobile phone and internet bills separately, which is not allowed under the new method.

Other claims that will be subject to more close checking include work-related clothing, dry cleaning and laundry expenses, as well as overtime, meal claims, union fees and subscriptions.

Some common landlord errors

One of the more common mistakes rental property owners make is to try to claim an immediate deduction for general repairs when those works are capital improvements that need to be deducted over time.

A new kitchen is a capital item but replacing damaged flooring or a broken window can be claimed as a repair.