Current ATO focus areas (3 main points):

1. Work related expenses (WRE).
2. Rental properties.
3. Crypto/digital assets.

WRE – mistakes often made:

1. Copy/paste deductions from last year – big ATO target area using data analytics (ATO has systems in place to pick up on people doing this (generally identifies invalid claims if copy/pasted each year).
2. Record keeping (or lack thereof) – link: https://www.ato.gov.au/General/Online-services/ATO-app/myDeductions/?=redirected_myDeductions
3. Clients not claiming all deductions they’re entitled to – see following link for industry specific ATO (with common industry claims) – link: https://www.ato.gov.au/individuals/income-and-deductions/occupation-and-industry-specific-guides/
4. We provide a checklist each year as a guide for common deductions which is not exhaustive or industry specific, hence it’s best to go through the ATO resources to ensure maximum deductions claimed.
5. ATO will be looking for a reduction in home office expenses with people going back to work in office (hence greater scrutiny this year).
6. Last year for COVID set rate of $0.80 per hour (all inclusive), people have been trying to claim both phone/internet on top of higher set rate (if using $0.52 per hour/lower rate, you can claim phone, internet, and equipment in addition, whereas $0.80 rate is all inclusive). Analysis required on which method achieves best outcome.
7. Motor vehicle claims when working from home – if working from home, unlikely to have vehicle/travel costs to claim.
8. Logbook/diary required for deductible vehicle claim – required to diarise for up to maximum of 5,000 km’s ($0.72 per km), or logbook for 12 weeks (to determine work %/use to claim actual overall expenses) – we will provide examples with our recording after the session.
9. The “myth” of just claim what you can – there is no such thing, records are required to prove claims (exception up to $300 without receipts – however, onus still on client to prove the expense claimed is deductible and incurred irrespective of $300 limit).
10. Finally, even though it’s not a work-related expense item, tax returns should not be commenced until August onwards. ATO pre-fill function isn’t updated for all tax information associated with a client/Tax File Number. Any errors, or omissions will result in an amended assessment in future. Causes double handling and unnecessary admin.

Rental Properties – what to look out for:

1. Repairs vs. improvements/replacing assets. Significant difference in tax outcome/what can be claimed upfront vs. depreciation (on capital account).
2. Clients sometimes think they may be entitled to a significant refund spending for example $10K on notional “repairs”. Not always the case – some items are repairs, and can be claimed immediately, whereas other items may need to be depreciated.
3. Repairs are spending money on defects putting it back to its original state, i.e., general wear and tear, broken tiles, tap leaks, general plumbing, electrical etc. (not replacing an asset).
4. Replacement of a defective asset usually means depreciating the item over its effective life. For example, spending $5K on a new air-conditioner is a new replacement asset which needs to be depreciated vs. claiming upfront expense as a repair. Claiming upfront would result in much higher refund brought forward vs. claiming expense over several years on capital account.
5. Improvements, spending money on what you’d ordinarily think are repairs, although replacing items with superior material results in improvements. For example, repairing a section of floor covering such as vinyl (putting back into original state = “repair”) vs. replacing floor coverings with superior material, i.e., from vinyl to timber floorboards – upgrading/improvement which is considered a capital expense (can be depreciated instead).
6. Apportioning expenses for weeks available for rent vs. weeks property rented out. If a property is being actively marketed for rental and is available for rent the entire year – the running costs are deductible in general.
7. If not, then expenses need to be apportioned based on weeks “available for rent” (weeks rented out is not the determining factor for deductibility).
8. Depreciation/QS report – are you maximising depreciation claims on your property – many providers are happy to provide deductions estimate upfront to see what the benefit would be. Reports vary from $400-$700 per property. Could end up in thousands of extra dollars in your pocket come tax time (can be done post 30 June).

Digital assets/crypto currency:

1. The misconception is that if you don’t “cash-in” your digital assets, there is no capital gain.
2. False, the gain you make, irrespective of whether you redeem the earnings into cash or reinvest into other crypto current is subject to capital gains tax.
3. ATO has data-matching systems to pick up on undeclared gains – a huge target area this year.
4. Make sure you declare all trades, so that we can include in your tax returns.
5. Avoids future audit and issues with the ATO.

Super – changes and updates:

1. Concessional contributions cap increased to $27,500 this year.
2. Concessional meaning SG, salary sacrifice, or personal contributions made to super where you are claiming a tax deduction.
3. For contributions to count, must be cleared into the super fund by 30 June.
4. $110K after-tax (non-concessional cap increased as well) – with bring forward rule available $110K x 3 years (for those under $1.7M balance).
5. From 1/7/22, removal of $450 minimum earnings per month – for super to be compulsory.
6. Under 18, there have been changes here that can be found via this link.
7. Those with Self Managed Super Funds (SMSF’s) – can look at using a double contribution strategy before June if higher income this year (to reduce taxable income). This is a specialist advice strategy which we can assist with (making $27,500 x 2 per person as concessional contributions this year) – using a SMSF “suspense account” (by claiming full deductions this year, although allocating half of the amount in July (next FY) against member account – which counts towards cap next year). Cap isn’t breached under this method – only can apply for SMSF’s.

Instant Asset Write-off (IWO) – temporary full expense depreciation extended:

1. Extended to 30 June 2023, for both new and second-hand asset purchases.
2. Motor vehicle depreciation is limited to just under $60K total claim – maximum deductible cost limit.
3. Vehicles can only be claimed to the extent of business/work use %, which requires a logbook to determine %.
4. Recent ATO audit focus has been on vehicles and logbooks. Cannot claim depreciation unless you have a logbook. 12 weeks, lasting 5 years unless significant change in usage. Example of the logbook
5. The same applies to Fringe Benefits Tax (FBT) on employer-owned vehicles (i.e., self-employed companies with their own entities) – refer to the newsletter for more info on this.
6. Don’t be caught out buying assets that are not for business and predominantly – COVID stimulus marketing has been aggressive for people to spend without considering tax/FBT implications.

Trust Distributions:

1. Changes to Trust’s over past 10 years have been significant.
2. Bamford case (approx. 10 years ago) – set a precedent on how important it is to have a properly structured Trust Deed.
3. Bamford case determined, your Deed defines what income a Trust can distribute, and how you can distribute the income – i.e., streaming or not. By default, must be on a proportionate basis (all income categories, capital gains, franked dividends etc.) unless Deed specifies otherwise.
4. If your Deed defines income according to ordinary “Accounting concepts” then it may not recognise franking credits, which means you can’t stream the tax credit to specific beneficiaries. It only recognises income/profit from accounting concepts (meaning ordinary accounting income) which doesn’t include tax credits as recognised income (i.e., franking credits).
5. The same applies to Capital Gains, if Deed doesn’t recognise Capital Gain as income for streaming, then you must use the proportionate approach which may not achieve the best tax outcome (particularly if you’re using corporate beneficiaries where CGT discounts do not apply).
6. Deeds should have provisions for defining income according to the Income Tax Assessment Act (or both).
7. A well-structured Deed allows for full flexibility on the definition of income and streaming of income capabilities to maximise outcomes.
8. Recent ruling s.100A in Feb 2022, has shaken up Trust taxation again. In essence, the ATO are saying you can no longer distribute/stream income to beneficiaries who will not economically benefit from a Distribution (in other words distributions cannot be solely tax-driven, without paying the monies to the beneficiary).
9. Please contact us regarding your Trust Deed, and Trust distribution strategies!

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