Millions of Aussies to score $1288 payment
The cost of living crisis is hurting but there is some relief coming real soon.
More than nine million Australians are expected to score a tax refund this year with the average person anticipating a return of $1288, according to new research.
All up a whopping $12 billion nationwide is expected to be shelled out during tax time but don’t expect a spending spree.
The tax-time cash injection will go straight into household savings or to pay the bills amid rising affordability stress, with almost half of Aussies planning to use their refund to beef-up their bank account, a Finder survey found.
One in four Australians said they will use their tax refund to pay for household bills as expenses like insurance and electricity soar, while one in 10 plan to put it towards paying off their mortgage as interest rates remain high.
The Australian Taxation Office (ATO) has outlined three key focus areas it has this year – rental property deductions, work-related expenses and gig economy workers.
KPMG tax partner Ursula Lepporoli said the ATO has stated that individual taxpayers are the second largest contributor to Australia’s tax gap – this is what the ATO would receive in tax revenue if income and deductions were correctly reported.
“Work-related expenses continue to be the single largest contributor to the tax gap, accounting for $3.7 billion. Common incorrect claims concern: a lack of connection to income producing activities; poor record keeping; and a failure to apportion deduction claims to account for private use,” she said.
“Be aware that the ATO’s data-matching capabilities are becoming more sophisticated, and the residential investment property loan (RIPL) data-matching program provides it with access to data from a variety of financial institutions, which will allow it to identify discrepancies with tax returns lodged.”
Staggeringly, the ATO recently claimed that there was an $8.7 billion shortfall between the tax individuals are expected to pay and the tax they actually are paying, said H & R Block director of tax communication Mark Chapman.
“The ATO believes that work-related expenses claims are the biggest element in that “tax gap” and have signalled that they’ll be looking closely at these deductions this year,” Mr Chapman warned. “Expect them to focus in particular on deductions for working from home expenses. The way these could be claimed changed last year, with the introduction of a new 67 cents per hour fixed rate and enhanced substantiation requirements.
“We expect the ATO to check claims thoroughly, particularly to verify whether taxpayers have a record of all their working from hours over the entire tax year, in the form of time sheets, a diary or copy of work rosters.”
Similarly, in relation to working from home, deductions for occupation costs like rent, rates and mortgage interest are under the spotlight as they are not allowable unless you’re actually running a business from home, he added.
Mr Chapman also cautioned that the ATO will likely crackdown on mobile phone and internet costs.
“With a particular focus on people who are claiming the whole or a substantial part of the bill for their personal mobile as work-related and people who are potentially ‘double dipping”,” he said.
“For example claiming the 67 cents per hour working from home rate – which includes an element for mobile phone costs – as well as claiming their mobile costs separately.”
Taxpayers should also be careful with their motor vehicle claims where they plan to take advantage of the 85 cent per kilometre flat rate available for journeys up to 5000kms.
“The ATO is concerned that too many taxpayers are automatically claiming the 5000km limit regardless of the actual amount of travel,” Mr Chapman said.
Ensure you have the necessary proof including invoices, receipts and diaries, that you actually incurred the expense and it was work or business related, he added.
Meanwhile, Ms Lepporoli said rental property claims would also be under closer scrutiny this year.
“According to an ATO review, 90 per cent of rental property owners have errors in their tax returns,” she noted.
“The ATO Personal Income Tax Compliance Program will run until 2027, focusing on key areas of noncompliance such as improper claiming of deductions relating to long and short-term rental properties to ensure they are genuinely available to rent.”
If you rent out a property or part of one through Airbnb and Stayz, you will be under the spotlight too, added Mr Chapman.
“The ATO has numerous third-party sources of data which it can use to identify if you are receiving rent and they are on the lookout for mismatches with the tax return data that you report,” he added.
Excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property will be scrutinised, he added.
Common mistakes can include incorrect apportionment of rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than jointly, he noted.
There’s also holiday homes that are not genuinely available for rent.
“Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed,” he said.
“The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years.”
With rising inflation and cost-of-living pressures, it is becoming increasingly popular for individuals to seek out alternate sources of income like ride-sharing and renting out rooms in a house.
The ATO is convinced that many people in the sharing economy are not properly declaring their profits and gains, Mr Chapman said.
“So, if you obtain work through Uber, Airtasker or any of the many sharing economy platforms which allow you to rent out assets or your personal services, take heed,” he said. “The ATO is now receiving reports from many platforms including Uber, which it can use to highlight data mismatches.”
Ms Lepporoli added that the benefits of using a tax agent extend beyond receiving professional expertise and guidance, but also allows you to extend your tax return due date and liability payment date beyond the usual 31 October deadline.
But those extra dollars an accountant might find you are unlikely to splurged.
Finder’s personal finance expert Sarah Megginson said it’s necessities before luxuries this tax time.
“Aussies are tired of living pay cheque to pay cheque and are counting on a tax time windfall to ease the pressure a bit,” she said.
“Many are drowning in debt and a significant proportion of taxpayers plan to reduce that burden with their return.”
She added savings accounts have been drained during the past 12 months as households struggle to cope with rising interest rates and cost of living.
“Millions have had to dip into their rainy day funds to keep up with the bills,” she said.
“A tax return of a few thousand dollars can be a huge boost to emergency funds and help them catch up financially.”
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