Taxman eyes home offices and cars

The ATO hopes to reel in millions from a crackdown on inflated work expenses, saying lots of little fish are draining more from tax coffers than the big fish. We look at common pitfalls in standard claims.
In recent years, the perception has grown that you need to get it pretty far wrong to attract serious attention from the tax office.
That's due, in no small part, to the publicity given to some brazen claims, such as the Sydney businessman pinged in 2016 for claiming he paid his seven-year-old son more than $5,000 for secretarial services.
This year the Tax Office has announced it will be coming down hard on burgeoning numbers of Australians thought to be fudging smaller work-related claims. This follows Tax Commissioner Chris Jordan making headlines last year when he told a Tax Institute conference that lost revenue from inflated work-related claims cost the economy more than multinational tax avoidance.1
This year, claims for standard deductions on home offices and car expenses will be coming under the microscope, with assistant commissioner Karen Anderson saying the ATO was dedicating time and resources to rein in abuses.
Last year Australians claimed about $8.8 billion in car-related expenses and about $7.9 billion in 'other' work related expenses, which includes home offices, phones and internet.
"Now we're not suggesting that that's all wrong, but it is something that we'll be able to look into," ATO Assistant Commissioner Kath Anderson says.
"The ATO's ability to identify unusual claims or red flags is improving every year due to enhancements in technology and extra data that we have available to us."
For the first time, records of all digital payments to businesses in Australia in 2017/18 are available to the ATO to check against lodgements.
"We use analytics to identify unusual claims being made by taxpayers by comparing them to their peers. We also use analytics to identify claim patterns," Ms Anderson says.
There are a few key areas for business owners.
Home offices
Unless you operate your business from home, you cannot claim occupancy expenses such as mortgage interest, rent, home insurance or council rates, says H&R Block director of tax communications Mark Chapman.
"It's a common area people (mistakenly) claim, but if you're simply working from home and your business is actually based somewhere else, you can't claim those costs," Mr Chapman says.
What you can claim is a proportion of the costs of running a dedicated home office space - cleaning and furnishing along with phone and internet bills. Getting that proportion right is where people can slip up, he says.
To avoid any potential issues, use a floor plan of your home to calculate the proportion of the total area that your office represents, then work out how many hours, on average, it is used each week.
"What you need to do is keep a diary for a typical four-week period - you don't need to do it for the whole year. And you just need to record all of the time spent working from home over that four-week period," he says.
"That, allied with the percentage of the floor area will give a percentage that you need to apply to all your various bills."
Cars
First, ensure any car expenses claimed are not already covered and claimed by the business.
If you plan to claim the standard 5,000km deduction doing the cents/km method, you need to have travelled that distance for work.
Ms Anderson says although log books aren't required to substantiate this claim, people do need to show how they calculated their mileage. "For example, by keeping a diary of places you have had to drive for work, and how often," she says.
"We are concerned some taxpayers mistakenly believe that this is a 'standard' deduction they are entitled to, without needing to provide any evidence of having travelled that distance."
Many 'tick a box' deductions are being thoroughly scrutinised this year, Mr Chapman warns. For example, although people can claim up to $300 on work-related expenses without receipts, claiming exactly $300 may raise red flags.
"They've really gone to town on some of those standard deductions this year," he says.
Claiming the journey from home to work was also a common mistake.
It's not too late
Work-related tax claims are notoriously tricky and the ATO makes allowances for genuine mistakes, says Mr Chapman.
"The reality is most taxpayers get it wrong inadvertently," he says. "If you become aware that you've claimed something you shouldn't have done, and you put in an amended tax return within the acceptable period, which is within two years, then you could potentially not suffer any penalty at all."
Check your super
Legislation passed the House of Representatives in June, granting a 12-month amnesty to employers behind on staff super payments.
The amnesty is an attempt to rein in ballooning unpaid Super Guarantee debts ahead of an expected crackdown next year.
It remains in effect until May 23 and applies to all Super Guarantee payments outstanding as of April 1 this year.
With payments tax deductible, Mr Chapman advises all employers to check their Super Guarantee payments and take advantage of the scheme if they are in arrears.
"The point of this really is to enable the ATO to draw a clear line in the sand and say, "Look we're giving you a chance now, get up to date. If you do that you'll be good. If you don't we'll come after you."
Businesses that don't come forward voluntarily can face penalties of 50 per cent on top of their Super Guarantee charges.
Tax: the information in this article does not constitute advice. As taxation legislation is complex we recommend you speak with your financial advisor, tax advisor or contact the ATO for further details and expert advice regarding your personal circumstances.

 

 
[1] Mather, J, The ATO just accused you of being a bigger tax problem than Apple, The Financial Review, 16 March 2017, https://www.afr.com/news/the-ato-just-accused-you-of-being-a-bigger-tax-problem-than-apple-20170315-guz6im