At a glance
- Over the past few years, the Australian Taxation Office has maintained a sharp focus on work-related expenses, rental property deductions, cryptocurrency and the private use of business assets.
- Incorrect claims often stem from poor record-keeping, a lack of awareness around tax obligations and a misunderstanding of the rules.
- Tax practitioners are advised to start helping clients set some new financial year resolutions, such as investing in digital accounting software, considering e-invoicing and improving their record-keeping.
By Elinor Kasapidis
The Australian Taxation Office (ATO) has been very clear about its focus on work-related expenses and rental property deductions for some time, with cryptocurrency and the private use of business assets also mentioned regularly.
Poor record-keeping and a misunderstanding of the rules tend to be behind many incorrect claims, and tax practitioners are advised to confirm that clients’ receipts, diaries and logbooks are in order, and that their claims are reasonably arguable.
It is also important to encourage clients to keep digital records and check that their claims have sufficient connection to their work and that they haven’t been reimbursed.
The ATO’s myDeductions app uploads information straight into Online Services for Agents, making it easier for practitioners, too.
Clients need to be asked directly about other forms of income, such as cryptocurrency or income from selling goods and services online and trading shares through apps.
Often, clients are unaware that they have to report and pay tax on their side hustle, and won’t necessarily divulge information about other income streams or about trading on foreign exchanges or swapping their Bitcoin for Ethereum.
Adjusting claims for private use can be a challenge, as employees often include non-work kilometres, landlords deduct for periods of private use or small business owners spend company money on personal expenses.
An important area of focus is educating clients about how to get deductions right, the consequences of making false claims and the ATO’s use of data analytics to detect incorrect returns.
What to consider now
Although tax returns may not be due until 2023, it is worthwhile reminding clients that over the next few weeks they need to:
- Document trust resolutions and dividend declarations before 30 June 2022
- Review and finalise Single Touch Payroll, including closely held payees by 14 July
- Correct any superannuation guarantee errors by lodging and paying the Superannuation Guarantee Charge Statement
- Lodge Taxable Payments Annual Reports by 29 August
Now is also a good time to help clients set some new financial year resolutions, such as investing in digital accounting software, considering einvoicing and improving their record-keeping to make tax time easier in the future.
Clients with professional firms or trusts should consider the ATO’s guidance on the allocation of profits within professional firms.
Draft guidance on reimbursement agreements (section 100A of the Income Tax Assessment Act 1936) and financial accommodation (Division 7A of the Income Tax Assessment Act 1936) may also be useful.
This guidance takes effect from 1 July 2022, and it is important to make clients who may be affected aware about about the risks and options sooner rather than later.
Following a COVID-19 hiatus, the ATO is working through its debt book and contacting clients and their agents to address unpaid liabilities.
The best way to resolve tax debts is to talk with the ATO and arrange a workable payment plan, otherwise Director Penalty Notices or disclosures to credit bureaus may follow.
In some situations, the client may also need to be referred to an insolvency practitioner or support for small business restructuring.
Many practitioners have experienced pressures in their lodgement programs for the past two years.
Practitioners who are still struggling to manage 2020-2021 tax returns are advised to consider contacting the ATO to discuss their situation and options.
Completing the tax return
The range of services provided by tax agents expands each year, and it’s a good idea for practitioners to regularly review their letters of engagement, ensuring that they properly reflect the terms and scope of the engagement and the specific tax agent services being provided.
This may include whether or not the practitioner will perform any follow-up action required by the client or the ATO, or whether the engagement includes assurance of tax records.
The ATO is gathering and data-matching more information than ever. Maximise the use of information that is available and ask clients about unexpected items or large variations from prior years.
Take the opportunity to confirm their communication preferences and help them transition to digital communication.
"Many practitioners have experienced pressures in their lodgement programs over the past two years. Practitioners who are still struggling to manage 2020-2021 tax returns are advised to consider contacting the ATO to discuss their situation and options."
The increased low- and middle-income tax offset is expected to drive many individuals to their tax agent to lodge straight away.
With some pre-fill details taking up to mid-August to become available, it is important to highlight the risks of early lodgement to clients, including amendments and penalties.
The ATO’s tax gap work has highlighted significant non-compliance with car fringe benefits. Discrepancies between GST and income tax amounts also attract attention from the ATO.
When preparing a tax return, take the opportunity to review and reconcile accounts for other obligations, such as GST and fringe benefits tax to identify and correct errors.
Be aware that the ATO and Tax Practitioners Board (TPB) client verification guidelines have been finalised, so it is important to ensure that proof of identity processes satisfy the new requirements.
As always, keep in mind the Code of Professional Conduct for tax agents and the TPB guidance on reasonable care, supervision and control, and outsourcing and offshoring.
