Who the ATO is targeting this year
HOME offices, work uniforms, Airbnb hosts and bitcoin investors are set to go under the microscope this year as the Australian Taxation Office attempts to close the "tax gap" and crack down on dodgy claims.
With the end of the financial year fast approaching, taxpayers are being warned there's nowhere to hide from the sophisticated data matching capabilities of the ATO, which is apparently a little bit upset with us.
"The ATO have been doing some work around what they call the 'tax gap' for individuals, which is basically the difference between what taxes people are paying and what the ATO believes they should be paying," said H&R Block director of tax communications Mark Chapman.
"What they've done is do a series of random audits on taxpayers. Rather than targeting taxpayers they think have issues, it's like a lottery, taking random taxpayers and auditing them. From that they've been able to work out what the gap is, and then extrapolate that over the whole taxpayer population."
Mr Chapman said the ATO, which hasn't released the exact numbers yet, placed a "fair bit of blame" for the size of the tax gap on the work-related expenses area. Last month's Federal Budget handed the ATO extra cash specifically to deal with the issue.
"The ATO have flagged work-related expense claims, specifically they've highlighted some of the flat-rate deductions that people can claim under the work-related expenses rules," he said.
"So for instance the 66-cents-per-km vehicle use which you can claim up to 5000km, the ATO are concerned people are claiming that as a standard amount irrespective of whether or not they travelled the 5000km.
"[Similarly] the $150 people can claim on laundry expenses, and the $300 people can claim without any substantiation if that's all they're claiming. The ATO are concerned people are claiming that almost as a standard deduction, which it's not."
Australians claim about $22 billion in work-related expenses annually, and ATO commissioner Chris Jordan last year said a "startlingly" large number of people were effectively gaming the system.
About 6.3 million people made claims against clothing expenses in 2014-15 totalling almost $1.8 billion, which would mean "almost half of the individual taxpayer population was required to wear a uniform or protective clothing or had some special requirements for things like sunglasses and hat".
The ATO has previously warned that there was no such thing as a "standard" deduction. In the same year, more than three million people made work-related car expense claims totalling $8.5 billion, a "significant proportion" of which were "right at the limit that does not require detailed records".
Mr Chapman said the "other deductions" category - covering things like home office usage, union fees and mobile phone costs - was also a big concern for the ATO. Taxpayers should expect greater scrutiny on what proportion they claim for work versus private use.
Also in the firing line this year will be property investors incorrectly claiming deductions, such as people with holiday homes claiming for times they actually use the home themselves, or letting the home out to family or friends at a reduced rate but claiming the full amount.
"There are also some instances where the ATO believes the properties are not genuinely available for rent in the first place but they're still claiming deductions," he said. "They might have all sorts of restrictions or terms and conditions on renting the property which would make the renter say no."
Another popular rort is when spouses who jointly own a property split the rental income in a way that's not 50-50, funnelling the higher deductions to the spouse who earns more to maximise the benefit.
"You can't do that," Mr Chapman said. "If it's two spouses it's 50-50, unless you've got some really compelling evidence to the contrary, and that's rare."
Uber drivers, Airbnb hosts, Airtasker taskers and other people who earn money in the sharing economy should also watch out. The banks and even the platforms themselves now hand over your information directly to the ATO, meaning the discrepancy will automatically be picked up.
"The computers see it as a mismatch, that there was some income which wasn't declared," Mr Chapman said. "They don't typically do a full audit, but they'll send you a letter asking if you want to amend your return."
Finally, investors who first got into bitcoin and other cryptocurrencies towards the end of last year could be in for a rude shock. "The ATO is really looking at that as a big risk area, because it's new and people don't understand the tax implications," he said.
"Probably the most common scenario is people will have capital gains tax implications through buying cryptocurrency and then selling. That could produce a very large profit or very large loss depending on when they did."
Liz Russell, senior tax agent with Etax.com.au, said while cryptocurrencies were often touted as an anonymous payment system that can't be tracked by banks or governments, the ATO's data matching kicked in as soon as they were converted to fiat currency.
"It's important to know how the ATO classifies cryptocurrency, as this determines how it's treated for taxation purposes," she said.
"There is a long-running debate over what cryptocurrency actually is - whether it's an asset, currency or collectable - but the ATO has made it clear that it treats cryptocurrency as an asset. That means it's subject to the same capital gains tax provisions that apply to real estate and shares."
Capital gains tax provisions are triggered when you sell cryptocurrency, in whole or in part. "Let's say you originally bought $5000 worth of XEM, which is one of the lesser-known coins consistently in the top 10 of cryptocurrency market caps," Ms Russell said.
"If you later traded it for fiat currency of $8500, then the $3500 in profit is considered a capital gain, and you'll need to add it to your assessable income for the financial year - much like you would any gains you make the sale of shares or an investment property."
On the other hand, if you sold your cryptocurrency at a loss - which is more likely given the market crash since its December peak - then you can deduct that amount from capital gains you made from another asset.
"For example if you made a $3000 loss on the sale of cryptocurrency but a $4000 gain on the sale of shares, your net capital gain would be the $4000 gain minus the $3000 loss, equalling a $1000 capital gain," she said.
One exception is when you use cryptocurrency to purchase items for personal use - such as in the 'digital currency-friendly' Queensland tourist town of Agnes Water, where visitors can use cryptocurrency at restaurants, cafes and other stores.
"For these sorts of transactions, no CGT is payable when disposing of cryptocurrency," Ms Russell said.
For businesses who receive cryptocurrency for goods and services, you must include the value of the cryptocurrency in Australian dollars as part of your ordinary income, the same as receiving any other non-cash payment under a barter transaction.
"One way of determining the value in Australian dollars is the fair market value which can be obtained from a reputable cryptocurrency exchange,"
"Where you purchase business items using cryptocurrency, including trading stock, you are entitled to a deduction based on the arm's length value of the item acquired."