ATO tax targets aim to stop both honest mistakes and cheaters

Hundreds of thousands of tax returns had mistakes in them last year, and the ATO is sharpening its focus on three key areas.

Work-related tax deductions and rental property claims will top the Australian Taxation Office’s hit list this tax time.

Less than two months before the end of financial year, the ATO says it will also focus on people who fail to declare extra income such as bank interest and share dividends.

And its hunt for tax cheats is being made easier by data matching and analytics technology it says helped it adjust almost half a million incorrect tax returns last year.

ATO assistant commissioner Rob Thomson said the three focus areas were key parts of tax returns most likely to be wrong, often a genuine mistake but sometimes deliberate.

Mr Thomson said last year more than eight million people claimed work-related deductions, with about half related to working from home (WFH) expenses.

ATO assistant commissioner Rob Thomson says don’t double dip. Picture: Supplied

The WFH rules changed twice in 2022-23, and while accountants have reported extra confusion among people around the popular fixed-rate method for deductions, Mr Thomson said this had not shown up in data.

“We haven’t seen any noticeable increases in mistakes for working-from-home deductions, but we are still seeing instances of double dipping, where the taxpayer separately claims the items which are included under the fixed-rate method,” he said.

“We are trying to remind taxpayers not to double dip.”

Property investors are a perennial ATO target, largely because its data shows nine out of 10 rental property owners get their tax returns wrong.

“There’s some complexity in the law which we think that leads to some misunderstanding, and there’s also an element around record keeping,” Mr Thomson said.

“There is an element for some where they are deliberately inflating their claim.”

The biggest landlord mistakes involve claiming too much interest for investment loans that also have a private component, and errors around repairs and maintenance deductions

The ATO uses technology to spot incorrect rental property claims. It analyses information from lenders, property managers, state revenue offices and insurance companies.

“We use a lot of this to identify where we are seeing mistakes,” Mr Thomson said.

“We educate those who we think have made a mistake, and ask a few questions of those we think are turning a blind eye to tax law.”

Perks tax director Neil Oakes says property investors claim big deductions. Picture: Supplied

ATO technology also spots people who do not declare all their income when lodging.

“Last year we did adjust 499,000 taxpayers’ tax returns using data matching,” Mr Thomson said.

Perks director of tax consulting Neil Oakes said the ATO’s focus areas reflected where its audit activity found “significant revenue leakage”.

Rental property costs were significant and resulted in large deductions and more potential revenue losses for the ATO, Mr Oakes said.

“For example, items such as council rates, insurance and land tax have increased significantly over the past 12 months,” he said.

“In addition, there has been a culture within Australia of taxpayers trying to convert private expenditure on beach houses and the like into tax-deductible expenses by claiming that these properties are available for rent.”

Mr Oakes said he was certain that people who prepared their own tax returns were making mistakes with working-from-home deductions.

“There were shortcut methods introduced during the Covid period, however taxpayers may be unaware that these have been removed and, as such, they may be inadvertently claiming deductions to which they are not entitled,” he said.