The tax office is watching you: What the ATO will be targeting this year

When we sit down to do our tax returns post-June, it’s easy to let your mind wander to the fantastical things you possibly could claim if you were bold enough, or worked in a different career.

Just this week, the tax office revealed some of the boldest claims, including a $30,000 safari trip by a laundromat owner, and swimwear purchased by a sweaty truck driver who just wanted to go for a dip on the job.

While those two are patently outrageous, some of the other claims are a little more opaque. I mean, who among us hasn’t been tempted to claim an air fryer as a work-from-home deduction? How else am I meant to re-heat my pizza?

But as the ATO likes to stress each time our tax returns are due, they are diligent, and they are watching. And while some of the tax office’s target areas, such as work deductions, are obvious,some are less so.

What’s the problem?

In the 2021-22 financial year, the tax shortfall – the difference between what the ATO expects to collect from taxpayers and what it actually receives – was $948 million. This is money that could be spent elsewhere on roads and hospitals and such, so it’s within the ATO’s (and the government’s) interests to reduce the gap. Plus, no one likes getting a “please explain” letter from the tax office.

What you can do about it

So to make sure you’ve got all your ducks in a row this tax time, here’s what our friendly tax experts think will be the ATO’s focus areas this year:

• Investment properties/holiday homes: These are a common fixture on the ATO’s hit list, likely because nine in 10 landlords get their tax returns wrong. Mark Chapman, head of tax communications at H&R Block, says property owners can expect the tax office to be looking at a number of areas. These include excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property, holiday homes that are not genuinely available to rent, and incorrect apportionment of rental income and expenses between owners. “The golden rule is; if you can’t substantiate it, you can’t claim it,” says Chapman. “So it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.”
• Rental repairs and improvements: In a similar vein, Julia Hartman, tax expert at BAN TACS, says the ATO will be focused on rental property owners, and if they are attempting to claim deductions immediately instead of depreciating them over a number of years. She warns that initial repairs are not immediately deductible. “For example, if the house needed painting when you bought it then painting it would be an improvement so you can only depreciate it at 2.5 per cent, per annum,” Hartman says. She also warns that repairs are not deductible if they are in fact improvements − which according to the ATO are when you restore the property to a condition that is better than when you bought it. “A repair can become an improvement if the repair goes beyond just restoring things to their original state, for example replacing a metal roof with tiles is not a repair,” she says. Hartman notes the line is “far from clear”, and it might be best to get advice.
• Bitcoin and other crypto: Another topic the tax office has been banging its drum about for a while is crypto. “Increasing numbers of taxpayers are jumping on the crypto bandwagon and the ATO believes that some of them are failing to declare the profits (and in some cases the losses) they are making on their investments,” Chapman says. The ATO will cross-reference data it receives from digital currency exchanges, so don’t think you’ll be able to get away with it so easily.
• Gig economy workers: If you drive for Uber or deliver for Amazon through its Flex program, the ATO is concerned you may not be properly declaring your profits and gains. This also applies to people who rent our their home through Airbnb or Stayz. The tax office is now receiving data from these services, which it can use to match up against your claims.
• A $300 misconception: Finally, this is a common one Chapman says he sees every tax time. The ATO allows work-related deductions of $300 to be immediately claimed without a receipt. “What we see is people claiming $300 without receipts, assuming it’s a free pass,” Chapman says. “It’s not. You must actually have incurred the expense.”

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.