ATO to crack down on tax return ‘double dipping’, targets outstanding Covid debts

With tax time fast approaching, the ATO has revealed why Aussies may get less than they were expecting on their return this year.

With tax time fast approaching, the ATO has warned Aussies that they may get less than they were expecting on their return this year.

The Australian Taxation Office says a moratorium on debt collection is coming to an end as the country emerges from the Covid-19 pandemic, meaning taxpayers with outstanding bills may have an amount deducted from their refunds or other credits with other agencies.

During the early days of Covid, the tax office shifted its focus away from firmer debt collection to assist businesses and the community.

“That’s pretty much gone into reverse now, the ATO takes the view that we’re heading back to normal, Covid’s done and dusted, therefore it’s pursuing small business tax debts,” said H&R Block director of tax communications Mark Chapman.

Mr Chapman said the debt collection would be a “big priority area” for small businesses.

“We understand that a lot of people – especially small businesses – have done it tough through Covid and may now have a tax debt,” ATO Deputy Commissioner Vivek Chaudhary said in a statement.

“Our message is – don’t stick your head in the sand – even if you can’t pay the full amount owed straight away, please contact us or your registered tax professional to discuss and we will work with you to set up an appropriate payment arrangement.”

Mr Chaudhary said it was possible for the ATO to arrange support and assistance, but only if the taxpayer or their representatives “talk to us and respond to our calls”.

“We cannot help taxpayers who do not engage with us,” he said.

The ATO is coming after tax debts after a Covid moratorium.

Debt collection

If taxpayers don’t pick up the phone, the ATO has warned of “firmer actions”.

Those include garnishees, recovery of director penalties, disclosure of business tax debts over $100,000, and legal actions including summons, creditors petition, wind-up and insolvency action.

“Our debt collection activities prioritise those taxpayers representing higher risks and refusing to engage,” Mr Chaudhary said.

“That is why our initial focus will be on taxpayers with higher debts before including taxpayers with all other debts. Taxpayers with Superannuation Guarantee debts may be prioritised irrespective of their debt value. This is because the Superannuation Guarantee is an entitlement that is owed to employees.”

Taxpayers with debts are being sent awareness letters – nearly 30,000 relating to disclosure of business tax debts and more than 52,000 about the use of director penalty notices so far.

The ATO says it has already issued nearly 300 intent to disclose notices and has started disclosing some of these to credit reporting bureaus Equifax and Creditor Watch.

Regarding companies with outstanding obligations, the ATO is currently issuing between 30 and 40 director penalty notices each day.

“We’ve seen an encouraging response to our awareness campaigns, with a significant level of payments and taxpayers entering into payment plans,” Mr Chaudhary said.

“In fact, more than 20,000 taxpayers have already responded to our awareness letters by making payments or entering into payment plans.”

Taxpayers are being warned not to ‘double-dip’ on deductions. Picture: iStock

Who ATO is targeting

Meanwhile, the ATO has revealed the other areas it will be targeting this year, including a particular focus on “double-dipping” claims for work-related expenses.

Other priorities will be record-keeping, rental property income and deductions, and capital gains from crypto assets, property and shares.

Nearly 10 million individual tax refunds were issued for 2021 at a total of $28.6 billion, with an average refund of around $2900.

“The list doesn’t contain any surprises but it is really a warning to taxpayers, particularly in terms of record keeping,” said Mr Chapman.

“It is essential you keep all your supporting documents to backup your deductions — the invoice, receipt, bank statement — it is essential you’ve got that before you claim a deduction because the ATO can ask to see it, and if you can’t produce it the deduction could be disallowed.”

Mr Chapman said the ATO was “not necessarily” conducting more checks that usual but “they’re publicising the fact they’re doing them more widely”.

“There isn’t really any excuse for taxpayers to be unaware of this,” he said.

Make sure you keep all of your records such as receipts. Picture: iStock

Double dipping

In 2021, around 8.4 million Australians claimed nearly $19.8 billion in work-related expenses.

The ATO is urging people to follow the rules for claiming, which depend on the type of job, individual circumstances, and whether there are the required records to support the claim.

“While some people make genuine mistakes, we do see people trying to gain an unfair advantage by claiming incorrect or false expenses,“ said Assistant Commissioner Tim Loh.

“A mistake that we often see in tax returns is people claiming expenses twice. You wouldn’t double dip your chip, so don’t double dip your deductions.”

He added, “Remember, we use sophisticated data analytics to monitor for incorrect information and you risk being audited or penalised for deliberately providing incorrect information.”

That includes claiming any expenses for which the taxpayer has already been reimbursed by their employer.

“If your boss has reimbursed your dry cleaning costs for your uniform, but you then claim laundry deductions on your tax return, well you’re picking your neighbours’ pockets,” Mr Loh said.

One in three taxpayers claimed working from home deductions last year. Picture: iStock

Working from home

During Covid last year, one in three Australians claimed working from home expenses in their tax return and the ATO expects the trend to continue.

But it says a common mistake is people using the working from home shortcut method to claim their working from home expenses and then double dipping, claiming additional amounts in their return for expenses such as their mobile phone and internet bills, as well as the decline in value of equipment and furniture.

The shortcut method of claiming expenses is all-inclusive.

Other options of calculating working from home deductions are the fixed rate and actual cost methods.

Taxpayers can use the ATO’s home office expenses calculator to help them work out which method will give them the best outcome.

“While the traditional methods require receipts, paperwork and other record keeping, the shortcut method only requires a record of hours worked – diary entries or timesheets will suffice,” Mr Loh said.

When claiming working from home expenses using the shortcut method, the amount needs to be included at the “other work-related expenses” question in tax returns with “Covid-hourly rate” in the description field.

If a method other than the shortcut method is used in later years and you want to claim depreciation for an expensive purchase such as a laptop, the correct records for that item must be kept.

“Getting your tax return right is simple if you have the right records,” Mr Loh said.

“Make sure you have your records before you lodge your tax return and keep your records after you’ve lodged, in case we have any questions. The easiest way to keep track of your records is with the ATO app. Even if you choose to lodge your tax return with a registered tax agent, it is still your responsibility to make sure the agent has all the correct records.”

Double-dipping on work-related car expenses will get you in trouble. Picture: iStock

Car expenses

Similarly, work-related car expenses are another area where people often double dip.

One of the most common mistakes among the nearly three million people who claimed work-related car expenses in 2021 was people using the cents per kilometre method to make their claim, and then double dipping by claiming expenses separately such as fuel, car insurance, and registration.

The cents per kilometre rate is all-inclusive and covers decline in value, registration, insurance, maintenance, repairs, and fuel costs.

The ATO says it will also be taking a closer look at claims calculated using the logbook method, to ensure they reflect people’s circumstances coming out of the pandemic.

“You must choose your preferred method when calculating car expenses, the cents per kilometre or the logbook method,“ Mr Loh said. ”Just because there is a dip in the road, doesn’t mean you can double dip your car expenses.”

The ATO continues to closely monitor rental income reporting. Picture: iStock

Rental income

If you are a rental property owner, the ATO is putting you on notice to make sure you include all the income you’ve received from your rental in your tax return, including short-term rental arrangements, insurance payouts and bond money you retain.

“We know a lot of rental property owners use a registered tax agent to help with their tax affairs,” Mr Loh said.

“I encourage you to keep good records, as all rental income and deductions need to be entered manually, you can ask your registered tax agent for assistance. If we do notice a discrepancy it may delay the processing of your refund as we may contact you or your registered tax agent to correct your return. We can also ask for supporting documentation for any claim that you make after your notice of assessment issues.”

Crypto investors who made money have to report capital gains. Picture: Lauren DeCicca/Getty Images

Crypto gains

Capital gains, particularly from crypto investors but also anyone who sells an asset such as property or shares, continue to be focus for the ATO.

If you dispose of an asset, including non-fungible tokens (NFTs) this financial year, you will need to calculate a capital gain or capital loss and record it in your tax return.

Generally, a capital gain or capital loss is the difference between what an asset cost you and what you receive when you dispose of it.

“Crypto is a popular type of asset and we expect to see more capital gains or capital losses reported in tax returns this year,” Mr Loh said.

“Remember you can’t offset your crypto losses against your salary and wages. Through our data collection processes, we know that many Aussies are buying, selling or exchanging digital coins and assets so it’s important people understand what this means for their tax obligations.”