What Areas are the ATO Focusing on for the 2023 Tax Season? 

August 31, 2023

The Australian Taxation Office (ATO) releases information regarding its areas of emphasis for tax returns each year. For 2023, these include rental property deductions, work-related expenses, and capital gains tax. In particular, the ATO will be directing its attention towards loan interest deductions on rental properties, deductions related to working from home, and capital gains tax implications when a primary residence is partly utilised for income generation. 

As such, during this tax season, the ATO forecasts a decrease in the number of individuals receiving refunds, or potentially smaller refund amounts, while an increased number of individuals may find themselves with tax debts. Additionally, the removal of the Low and Middle Income Tax Offset (LMITO) for the 2023 year will see many taxpayers with refunds of up to $1,500 less than in 2022. 

Residential Rental Properties

According to a recent review conducted by the ATO, approximately 90% of rental property owners are incorrectly filing their tax returns. Consequently it comes as no surprise that the ATO will closely examine this area during the 22/23 tax period. Commonly made mistakes include:

  • Failing to report or under report rental income 
  • Exaggerating expense claims
  • Attempting to claim capital improvements made to personal properties

The ATO is also placing an emphasis on scrutinising interest expenses and are alerting taxpayers to the recent implementation of the residential investment property loan data matching program. This program covers the income years from 21/22 to 25/26. It utilises data from different financial institutions, including details about interest charges and loan repayments associated with residential investment properties. The purpose of this program is to identify any inconsistencies or discrepancies in the tax returns submitted by taxpayers.

Home Office Expense Deductions

Another area of focus for the ATO is work-related expenses. There have been recent changes in the methods for calculating deductions related to working from home, effective from 1st July 2022. Taxpayers now have the option to choose between the actual cost method or the fixed rate method. The previous "shortcut" method of claiming 80 cents per hour – temporarily introduced as a response to so many people working from home during covid – is no longer available. To adopt either of the available methods, it is essential to maintain proper records, including the total number of hours worked from home. These records will be crucial in substantiating the claims made for work-related expenses in the event of an ATO audit. 

Actual Cost Method

The actual cost method requires a calculation of the actual additional expenses incurred as a result of working from home such as electricity and gas, phone & internet, stationery, computer consumables and depreciation of furniture and equipment. Only the percentage relating to work is deductible. 

Fixed Rate Method

The fixed rate method is a set rate of $0.67 per hour for the 2023 year and includes:

  • home and mobile internet or data expenses
  • mobile and home phone use
  • electricity and gas
  • stationery and computer consumables eg/ printer ink and paper

To use the fixed rate method, the taxpayer must keep a diary of the number of hours worked for the year. 

Capital Gains Tax

The ATO's final area of focus for the 2023 tax season is capital gains tax (CGT). Apart from the typical disposal of assets like shares, cryptocurrencies and managed investments, the ATO will closely examine situations where your primary residence or a portion of it is used for an income producing purpose and is then subsequently sold. This scenario applies when individuals have rented out their entire main residence or a part of it through conventional methods such as sharing economy platforms such as Airbnb. The ATO will also pay close attention to situations where a taxpayer is operating a business from a residential property. These specific circumstances will be under scrutiny regarding potential CGT obligations.

It’s crucial for taxpayers to be across the areas of focus for the ATO this year so that you can keep the required records and work with your accountant to ensure that you’re working with the best possible, legal tax strategy.

If you’d like more information on this topic, you can head to the ATO’s media release or the CPA website.

As always, we’re here to help. Get in touch for any tax related enquiries or to book your tax return in.

Written by 
Steven Lim
August 31, 2023

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