Tax returns are one of those mandatory business tasks that must be done every year.
Luckily, the Cadenze team are here to help you. So, we’ve compiled a list of the things the ATO have indicated they will be focusing on when you submit your tax return this tax year.
Working From Home Expenses
The Australian Tax Office (ATO) has announced changes to the way working from home deductions are calculated. The work-from-home restrictions that surrounded Covid essentially changed the way that many people work. Despite those restrictions now being lifted, lots are still choosing to work some (or all) of their hours from home.
To reflect that, the ATO has refreshed the way taxpayers claim deductions for their working from home costs:
Eligibility
To be eligible to claim working from home costs, you need to actually work from home to fulfil your employment duties. Simply checking a few emails or taking a couple of calls does not count. You also must be able to prove a link between the costs incurred and the way you earn your income in order to claim the cost as a deduction.
The good news is that you no longer need to have a dedicated home office to use the fixed rate calculation method. And even though your employer may provide tea, coffee and milk in your workplace, these are not costs you can claim when working from home.
It is essential that you keep records of the time worked from home and the individual costs you incur so that you can prove your eligibility at tax time. If you haven’t kept records for the year to date, chat with our team about your options as the ATO has advised transitional arrangements are in place for the 2022-23 financial year.
Claiming Your Costs
Previously, the ATO had multiple rates to calculate your deductions depending on whether you had a dedicated home office or not. For the 2022-23 financial year onwards, they have simplified the process, allowing you to either claim based on a fixed rate or you can calculate your actual costs.
Fixed Rate: You are able to claim a fixed rate of 67 cents per work hour to cover costs like energy expenses, phone usage, internet, stationery and computer consumables. If you choose the fixed rate calculation method then you can’t make additional deduction claims for miscellaneous costs incurred. The only other costs you can claim are those associated with cleaning your dedicated home office, repairs and maintenance, and a decline in the value of assets such as your computer or office furniture.
If you have any questions about how you can claim your working from home costs correctly, then speak with our expert team today. We can ensure you maximise the deductions available to you.
Actual Rate: The method for calculating your actual costs hasn’t changed. You are still able to claim the work-related portion of all your running expenses. In order to claim in this way, you need to have proof (such as receipts or utility bills) of all the costs incurred. You will also need to show how you have calculated the work-related and private portions of your expenses.
Mileage Expenses
You are able to claim for the cost of trips you undertake in your private vehicle while performing your work duties. The rate is calculated at 78 cents per kilometre.
Remember, you cannot claim for your ordinary commute between home and work unless you are required to travel with bulky tools & equipment essential to your employment and there is no secure storage area at your workplace. You can only claim for travelling to activities like site visits or client meetings.
Self Education Expenses
It is possible to claim the cost of self-education undertaken to improve your professional skills in certain circumstances. In previous financial years, there was a stipulation that the first $250 of self-education costs must be excluded from your claim. As of the 2022-23 financial year, that exclusion has now been removed.
Rental Properties
The ATO has issued a specific reminder that rental property owners should take care when lodging their tax returns this financial year. The reminder indicates they are going to be focusing their energies heavily on this area and will not take kindly to errors.
It is thought that as many as 9 in 10 rental tax returns are submitted wrong, so you can understand why the ATO is cracking down.
Rental income
Ensure all rental income is declared, including short term rental arrangements like Airbnb, renting part of a home, insurance payouts and rental bond money retained.
Be aware that the ATO has sophisticated data-matching abilities that allow it to draw on crucial intelligence to ensure income and deductions are correctly reported.
Rental expenses
Rental expenses fall into three different categories:
- Property related expenses you can claim upfront like loan interest, council rates, repairs and maintenance etc. that can be claimed as an immediate deduction
- Property expenses that you can claim over several years such as capital works, borrowing expenses or the decline in value of depreciating assets.
- Expenses you cannot claim a deduction for such as personal use of the property, secondhand furniture and some capital expenses including acquisition and disposal costs
If you are unsure about what expenses you can and cannot claim, then simply get in touch with our expert team.
Rental Concerns To Be Mindful Of
These are a few of the areas that the ATO has indicated they will be paying special attention to:
- Interest expenses: ATO wants rental property owners to understand how to correctly apportion their loan interest costs where part of the loan was used for private purposes. You can only claim deductions on the interest portion relating directly to the rental property. If you make further drawdowns on your loan for personal expenses this part of your loan is non-deductible.
- Repairs and maintenance: It is also important to understand the difference between capital works and general repairs. If you have owned your rental property for a number of years and perform maintenance tasks such as fixing a broken window, these repairs are considered to be immediately deductible. Major works and improvements like renovating a kitchen are considered capital and the deductions must be claimed over a number of tax years. You must also be careful with initial repairs incurred to fix damage or defects that existed at the time of purchasing your property as these cannot be claimed as an immediate deduction.
- Short-term rentals: If you own a holiday home and utilise it for personal use (or lend it to friends and family) at points throughout the year, you will need to apportion your deductions to account for that private use. You’ll also want to be mindful if your short-term rental property is in Victoria and is let via Air BnB as there is a new Short Stay Levy of 7% that is scheduled to come into effect on 1 January 2025.
- Travel: Keep in mind that you can no longer claim travel costs for visiting your rental property. This includes car expenses, airfares, taxi costs, hire cars, public transport, accommodation and meals. It relates to all activities involving your rental property, such as inspection, maintenance, visiting your letting agent or collection of rent for your rental property.
Audit Insurance
Audit Insurance is a great way to protect your business and we do recommend it. Being audited by the ATO can be a costly process. Audit Insurance is an affordable way to protect your business from the costs associated with an audit. It means if you do happen to be audited, your insurance will cover the cost of your accounting fees associated with this process.
Now is the time to get it sorted! Especially if you have not selected an auto-renew function on your current audit insurance policy. The ATO is cracking down in this area and will not be lenient with any debt that is outstanding.
If you have any questions about audit insurance or how to prepare your tax return correctly, then simply get in touch with the Cadenze team today.