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The Tax Office has revealed its focus areas this tax time, making clear it will ramp up scrutiny on landlords inflating claims for rental deductions and individuals incorrectly claiming work-from-home expenses.

Rental deductions would be under the microscope after the ATO found that 9 out of 10 rental property owners got their tax returns wrong, with most common issue being incorrect repairs and maintenance claims.

This year, they are particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit.

Immediate deductions could be claimed for general repairs and maintenance of a rental property – like replacing damaged carpet or a broken window – but capital expenses can not.

If you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works.

The ATO recommended owners either “carefully reviewed” their records before lodging a return to ensure they were claiming deductions correctly, or using a registered tax agent to help with preparing income tax returns.

Ensuring you provide full and complete records to your registered tax agent allows them to prepare your tax return correctly, so you claim everything you’re entitled to and nothing that you’re not.

Another target for the ATO will be work-related expenses in light of recent changes to WFH deduction rules. The ATO said that many taxpayers would trip up on changes to the fixed rate method of calculating a WFH deduction after more than 4 million people claimed one last year.

The 80c shortcut method, introduced during COVID-19, finished at the end of FY22 and a revised fixed rate method was introduced in 2023, raising the rate from 52c to 67c an hour.

The revised fixed rate method changes also included a broadening of expenses covered and adjusted record-keeping requirements, meaning “you must have comprehensive records to substantiate your claims as you would for any other deduction.

Taxpayers would need to produce records that showed the actual number of hours worked from home (like a calendar, diary or spreadsheet) and additional running costs incurred to claim a deduction (like a copy of your electricity or internet bill) or face a “please explain” from the Tax Office.

Deductions for working from home expenses can be calculated using the actual cost or the fixed rate method, and keeping good records gives you the flexibility to use the method that works for you, and claim the expenses you are entitled to.

Copying and pasting your working from home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’. Your deductions will be disallowed if you’re not eligible or don’t keep the right records.

Taxpayers should not rush to lodge returns on 1 July if they had income from multiple sources such as interest from banks, dividend income, payments from other government agencies and private health insurers. By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO.

Accountants Daily