Cryptocurrencies, about 2.6 million investment properties and the boom in working from home will be among the prime targets for the Australian Taxation Office review of end-of-financial year returns.
ATO assistant commissioner Tim Loh says he expects the impact of lockdowns and COVID-19 to result in fewer claims for travel and dry-cleaning of uniforms and more for home desks and data.
Cryptocurrency trading, losses and gains are also a focus, with the ATO writing to 100,000 taxpayers and sending pop-up messages reminding them gains are taxable even if they have not been cashed into Australian dollars.
Loh says the ATO uses sophisticated data-matching techniques to track, monitor and compare information from several sources to identify gains – ranging from secretive bitcoin deals to rental “mates’ rates” for beach houses.
Last year the ATO received returns from 13 million taxpayers reporting income of about $827 billion.\
Many of the more than 1.8 million Australians owning investment and rental properties have had their income disrupted as governments imposed tough rental restrictions because of the impact of COVID-19.
“That means the amount of income might have fallen as tenants negotiated lower rents,” says Loh about a sector where last year owners declared about $37 billion in revenue and made about $38 billion worth of deductions.
He urges declaration of income from all real estate sources, such as rent from sharing part of the main home and holiday homes and record use of accommodation share platforms, such as Airbnb.
Investors can claim a deduction only for the period the property is rented or is genuinely available for rent. Deductions for properties used for both private and income-producing purposes can be claimed only for income-producing use.
That means the ATO will monitor claims of full ownership for a partly-owned property – owners who charge mates’ rates rather than market rates and rent for only part of the year but claim the full year.
In addition, the ATO will monitor redraw facilities on investment mortgages that are being used for personal use, such as buying a car. A redraw facility is a loan feature that allows the draw back of additional payments made on the loan.
Loh says the number of people claiming working from home expenses last year jumped by more than one-third to 4.42 million as COVID-19 resulted in record numbers working from home offices or make-shift workspaces, such as kitchen tables.
But that doesn’t mean it’s open season on making claims for teabags, Tim Tams and toilet rolls that were used at home but would have usually been provided by an employer when working in an office.
Employees who work at home also can’t claim for setting up online learning for their children, teaching them at home or buying them equipment, such as iPads and desks.
Loh says there are three ways for calculating home office expenses:
- The temporary shortcut method, which is available for the entire financial year, enables an all-inclusive claim of 80¢ per hour. It covers working from home expenses, such as phone, internet, gas for heating and cooling, lighting and equipment. Those claiming do not need a dedicated work area but must keep a record of the number of hours worked from home using a diary or timesheet.
- A fixed rate of 52¢ an hour. This is for those with a dedicated workspace, such as a home office. It does not include phone, internet or computer consumables or the decline in value of technology equipment. “You can only claim what is used in work-related activities,” says Loh. For example, claims for internet usage should cover time spent on the office computer, not watching Netflix.
- “Actual cost method”, which means using expenses to work out a deduction on costs for everything from cleaning to computers. “This is more complicated and requires keeping of good records of expenses,” says Loh.
Loh says about 600,000 people have invested in cryptocurrency and that number is expected to “increase quite significantly”.
Cryptocurrency is used to describe a digital asset using encryption techniques to regulate the generation of additional assets and verify transactions on a blockchain.
While it generally refers to bitcoin, which was the first on the market, there are other crypto or digital currencies with similar characteristics.
Loh says: “It is an area we are really focused on and want people to get right.” A key problem is users failing to keep personal records of any transactions, he adds.
Many think the ATO cannot track transactions because cryptocurrency is such an opaque sector.
But deals eventually emerge when “they interact with the real world”, such as with a bank, other financial institution or cryptocurrency exchange.
“People are not keeping good records,” says Mr Loh. “It is really important to keep receipts of any exchanges, receipts from agents, digital wallet records and the value of the currency at the time of sale or purchase.”
Capital gains events can occur when a cryptocurrency is sold, gifted, traded, converted to cash or used to obtain goods or services.
“If the disposal is part of a business you carry on, the profits you make on disposals will be assessable as ordinary income,” Loh adds.