4 key areas the ATO have identified taxpayers often make mistakes
As we move into a new financial year the ATO have highlighted four key areas where they have identified taxpayers are often making mistakes:
Work-related expenses
Record-keeping
Rental Property income and deductions
Capital gains on the sale of crypto currency, property and shares
Work-Related Expenses
This tax time it is essential to adhere to the ATO’s three Golden Rules when claiming a tax deduction:
You must have spent the money yourself and weren't reimbursed.
Losses or outgoings can be claimed ‘to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. (Section 8-1, ITAA 1997).
If your employer pays for or reimburses you for any costs then you won’t be able to claim a deduction.
The expenses must directly relate to earning your income.
To claim a tax deduction there must be a sufficient nexus between the expense and the production of assessable income. The expense needs to be in relation to how you are currently generating income. Therefore, any expenses incurred prior to the generation of income will not be deductible.
Many often incorrectly claim conventional clothing which could otherwise be worn outside of work. To be deductible, clothing must be protective, occupation specific, a compulsory uniform, or a registered non-compulsory uniform.
You must have a record to prove it (usually a receipt).
The ATO’s myDeduction app is an easy and convenient way to keep your records together and ensure the quality of your documentation is maintained. The data sharing capabilities will also mean the records can be pre-filled to your tax return.
When keeping digital copies of supporting documentation it is important to ensure the copies of the original are clear and legible. Keeping a backup is also highly recommended!
For more information, please see the following link – Australian Taxation Office - Individuals - Income and Deductions - Deductions you can claim
Record Keeping
In most cases, the ATO will require you to keep your records on file for 5 years from the date you lodged your tax return. However, there are several circumstances where you will need to retain original documents and notes for a longer period of time.
For those claiming deprecation, purchase receipts and depreciation schedules will need to be kept for 5 years from the date of your final claim.
You will need to retain cost base information for all capital Items (such as shares, crypto currency, rental properties, holiday homes, etc) for 5 years from the date:
You acquired or disposed of the asset
You became certain no CGT event will occur after the property is acquired, sold or otherwise disposed of
If you are in dispute with the ATO you will need to retain documents for 5 years from the latter of:
The date your tax return was lodged
The date the matter was resolved
For more information on the ATO’s guidance for record keeping please see the following links -
Australian Taxation Office - Individuals - Income and Deductions - Records you need to keep
Australian Taxation Office - Business - Record keeping for business
Rental Property Income and Deductions
If you are a landlord, you will need to include all long-term and short-term rentals, bond monies withheld, expense reimbursements, insurance payouts in your tax return.
Australian residents will need to account for income and deductions related to rental properties located outside of Australia. Non-residents will be assessed on the net rental income that relates to Australian real property.
For the most part, rental income and expenses will need to be accounted for in line with legal ownership. The ATO assumes is that the equitable right will be the same as what appears on the legal title, unless proven otherwise. This includes instances where a taxpayer may pay more than their 50% share of expenses. The ATO will view this as a private agreement between the owners.
Please see the following link for more helpful tips - Australian Taxation Office - Top 10 tips to help rental property owners avoid common tax mistakes
Capital Gains
Capital Gains Tax (CGT) is the tax you pay on the profits made following the sale of an asset, including property, shares, crypto currency, collectables (costing $500 or more), personal use assets bought for $10,000 or over.
Crypto currency has gained popularity as a form of investment however many are unsure as to when a capital gain may arise.
When cryptocurrency was acquired to make a private purchase (and it was not held on to) then the holding may qualify as a personal use asset. With that being said, cryptocurrency is generally considered an investment, even if part of the funds were used for private purchases.
A CGT event A1 occurs when the crypto currency is sold for a fiat currency ($AUD), exchanged for another crypto currency or used to pay for goods or services (Section 104.10, ITAA 1997).
Each cryptocurrency holding is recognised as a separate asset and when one cryptocurrency is exchanged for another the ATO will view this as the disposal of one asset and the acquisition of another.
To find out if any of your assets will be subject to CGT please see the following ATO guidance -
Australian Taxation Office - Individuals - Capital Gains Tax - List of CGT assets and exemptions
Need Cordner Advisory to help?
If you would like more information or need any assistance regarding the above, please do not hesitate to contact us on (07) 5504 5700 to speak to one of our trusted advisors today.
Cordner Advisory - Your Business Advisory, Accounting & Tax Specialists. Catering for clients all across Australia, from the golden beaches of the Gold Coast and Sunshine Coast to the capital cities such as Brisbane, Sydney and Melbourne
Ensure accuracy with your tax deductions; contact Cordner Advisory Broadbeach, Gold Coast today for expert guidance.
