Are you on the Tax Office Radar?

Each year, the Taxation Office issues a list of deductions that they will be targeting in the coming financial year. This year is no different, but what is reported to the Taxation Office is different.

Before the 2019 financial year, the Taxation Office only received a total of the work-related deductions. From 2019, each line item will be reported to the Taxation Office so that they have more of a breakdown of each deduction. Therefore, being able to substantiate your deductions has become even more important.

In future newsletters we will be delving into some work-related deductions to explain what can be claimed and what documentation is required.

So, what is on the radar this year with the Taxation Office?

  1. Clothing/Laundry – these can only be deducted if you are required to wear specific work branded clothing or required protective clothing for work. $150 can be claimed for laundry but if your total work-related deductions exceed $300, the $150 laundry claim will need to be substantiated with receipts or a diary.
  2. Car expenses – The Taxation Office now has sophisticated data matching processes in place with the state vehicle registers (eg VICROADS) to ensure that you have a car registered in your own name. The Taxation Office is concerned about the number of taxpayers claiming up to and including 5,000 kms for travel purposes. A diary should be kept for the year to substantiate the business kms travelled during the year. If you use a logbook method to claim deductions, please ensure your logbook is maintained and is not more than 5 years old.
  3. Mobile phone / Internet use – This seems to be high on the Taxation Office agenda this year. To claim a deduction of more than $50, you need to keep records for a four-week representative period in each income year. These records may include diary entries, including electronic records, and bills. Evidence that your employer expects you to work at home or make some work-related calls from home will also help you show that you are entitled to a deduction. The fact that you require these services to undertake your employment is no longer a reason to claim these expenses. You need to substantiate the work use.
  4. Rental Property Deductions – The Taxation Office will be looking at “holiday homes" to ensure that they are genuinely available for rent. They will also be looking at excessive interest claimed to ensure that the interest is solely for the rental property and not for personal homes.

If you would like to see more industry specific guides for what you can claim and not claim, please refer to the following Taxation Office link.

https://www.ato.gov.au/Individuals/Income-and-deductions/Occupation-and-industry-specific-guides/

With the improvement in recent years around artificial intelligence, we can expect more letters being issued from the Taxation Office for an explanation of specific work-related deductions. These deductions may be legitimate but substantiation of these expenses will be required such as a receipt, bank/credit card statement or diary entry. If they cannot be substantiated, the deduction will be disallowed.

TAX AUDIT INSURANCE

With the increase in activity of reviews/audits being undertaken by the Taxation Office, we would recommend that you consider audit insurance.

If the Taxation Office requests a review of your income tax return, our fee to undertake this could be $300 or more depending on the matter. Audit insurance premiums start at $115 p.a. and will give you peace of mind that the accounting costs are covered in the event that the Taxation Office undertakes a review or audit of your tax returns.

If you would like to know more about audit insurance, please click here. If you would like a quote for audit insurance or to arrange audit insurance, please contact our office and we can assist you.