What is on the ATO’s hotspot list this year?

Every Tax Time, the ATO focusses on certain hotspots where taxpayers are prone – either accidentally or deliberately – to make errors.

So, what is on the ATO’s list this year? Expect them to be looking in particular at:

• record-keeping
• work-related expenses
• rental property income and deductions
• sharing economy income, and
• capital gains from crypto assets, property, and shares.

Let’s take a look at each of those areas in turn in an attempt to understand why they receive so much attention from the ATO.

Work-related expenses

The ATO recently claimed that there was an $8.7 billion shortfall between the tax individuals are expected to pay and the tax they actually are paying. The ATO believes that work-related expenses claims are the biggest element in that “tax gap” and have signalled that they’ll be looking closely at these deductions this year. Expect them to focus in particular on:

• Deductions for working from home expenses. The way these could be claimed changed last year, with the introduction of a new 67 cents per hour fixed rate and enhanced substantiation requirements. We expect the ATO to check claims thoroughly, particularly to verify whether taxpayers have a record of all their working from hours over the entire tax year, in the form of timesheets, a diary or copy of work rosters.
• Similarly, in relation to working from home, deductions for “occupation” costs like rent, rates and mortgage interest are under the spotlight as they are not allowable unless you’re actually running a business from home.
• Mobile phone and internet costs, with a particular focus on people who are claiming the whole (or a substantial part) of the bill for their personal mobile as work-related and people who are potentially “double dipping” (ie, claiming the 67 cents per hour working from home rate – which includes an element for mobile phone costs – as well as claiming their mobile costs separately).
• Claims for work-related clothing, dry cleaning and laundry expenses
• Overtime meal claims
• Union fees and subscriptions
• Motor vehicle claims where taxpayers take advantage of the 85 cent per kilometre flat rate available for journeys up to 5,000kms (the ATO is concerned that too many taxpayers are automatically claiming the 5,000km limit regardless of the actual amount of travel)
• Incorrectly claiming deductions under the rule that allows taxpayers who have incurred work-related expenses of $300 or less in total to make a claim without receipts (the ATO believes that some taxpayers are claiming this – or an amount just less than $300 – without actually incurring the expenses at all).

H&R Block’s top tip before making any claim is to be confident that you understand what you can and can’t claim and that you have the necessary proof (invoices, receipts, diaries, etc) that you actually incurred the expenditure (look at the first focus area – record keeping!) and that it was work or business related.

Property spotlight

The other main focus this year is on people who make deduction claims in relation to investment properties and holiday homes. The ATO recently announced that in a series of audits, they found errors in 90% of returns reviewed. So, this year, expect them to focus on the following:

• Excessive interest expense claims, such as where property owners have tried to claim borrowing costs on the family home as well as their rental property.
• Incorrect apportionment of rental income and expenses between owners, such as where deductions on a jointly owned property are claimed by the owner with the higher taxable income, rather than jointly.
• Holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed.
• Incorrect claims for newly purchased rental properties. The costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately. These costs are deductible instead over a number of years.

The key tip from H&R Block is to ensure that property owners keep good records (which ties into the first of those focus areas again!). The golden rule is; if you can’t substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.

Sharing economy

The ATO is convinced that many people in the sharing economy are not properly declaring their profits and gains. So, if you obtain work through Uber, Airtasker or any of the many sharing economy platforms which allow you to rent out assets or your personal services, take heed. The ATO is now receiving reports from many platforms (including Uber), which it can use to highlight data mismatches.

Similarly, if you rent out a property (or part of one) through Airbnb and Stayz, you will be under the spotlight. The ATO has numerous third-party sources of data which it can use to identify if you are receiving rent and they are on the look-out for mismatches with the tax return data that you report.

Cryptocurrency

The ATO will also be taking a closer look at the booming market in investments in cryptocurrencies like Bitcoin. Increasing numbers of taxpayers are jumping on the bandwagon and the ATO believes that some of them are failing to declare the profits (and in some cases the losses) they are making on their investments. Remember, investing in cryptocurrencies can give rise to capital gains tax (CGT) on profits. Traders can be taxed on their profits as business income.

To help them in their search, the ATO is collecting bulk records from Australian cryptocurrency designated service providers (DSPs) as part of a data matching program to ensure people trading in cryptocurrency are paying the right amount of tax. Data provided to the ATO includes cryptocurrency purchase and sale information. The data will identify taxpayers who fail to disclose their income details correctly.

The ATO estimates that there are between 500,000 to one million Australians that have invested in crypto-assets.

Shares

When you dispose of shares, assuming you are an investor, not a trader, you will normally have to pay CGT on any profits.

Typically, CGT arises when you sell shares but can also happen if you give them away or you stop being an Australian resident. CGT taxes any increase in value from the time the share was acquired.

Sometimes the proceeds and cost base of the share are not what was actually paid and/or received, but rather, the market value of the asset. This is typically to prevent people from minimising their tax by, say, selling the share to a relative for a low price.

If you dabble regularly in buying and selling shares, you could be deemed a share trader, rather than a share investor. If that’s the case, the tax you pay could look very different.

A share trader is someone who buys and sells shares purely for short term profits. Signs that you’re a trader include:

• Lots of transactions
• A clear profit making intent
• You run your activities in a business-like manner (eg, a large investment of capital, a well-developed business plan, extensive research and properly maintained books and records).

Someone who buys and sells shares as part of a business will treat those shares as trading stock, and gains or losses on them will be taxed as ordinary income (effectively as business profits) rather than capital gains.

You can see from the above that there is ample opportunity to get the tax treatment wrong or mischaracterize income in a way that gives you a tax advantage, hence the ATO interest in this area.

Make sure that you have the necessary information about all your share sales so you can report this to the ATO. You’ll need details of the original purchase cost, the sales proceeds, the dates of acquisition and sale and any associated costs (eg, brokerage fees).

By Mark Chapman Director of Tax Communication

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Mr Chapman brings an outstanding track record as an accounting professional executive and former military leader. As the former Bentleys Network Chief Executive Officer, during his tenure, Mr Chapman doubled the size of the number of membership firms within the network.

“I am pleased to accept the position of COO with CountPlus, especially in this exciting stage of growth for the company. Under Matthew Rowe’s leadership, CountPlus is poised for strong growth and I am thrilled to be part of the next phase of its development,” said Mr Chapman.

Prior to his corporate roles, Mr Chapman served as an accomplished military officer within the British Army, where he was awarded an MBE for international stakeholder engagement.  He has also served in the Australian Army.

“We are delighted to welcome Mr Chapman. CountPlus will benefit from Mr chapman’s unique leadership qualities and sector experience. He will be responsible for embedding our value proposition and growing the network of firms under the ‘Owner-Driver, Partner’ model,” said CountPlus CEO Matthew Rowe.
“Mr Chapman has a proven track record of excellence and his appointment along with our renewed focus on delivering value to our firms is a clear milestone in our turnaround strategy,” said Mr Rowe.

Mr Chapman holds a Master of Business Administration and Master of Business from University of Newcastle. He is a member of the Australian Institute of Company Directors and Institute of Risk Management.

Corporate Advisory

Consistent with its revitalisation and growth initiatives, CountPlus has also appointed corporate adviser Genesis Advisory to support the Board in future merger and acquisition (M&A) opportunities.

“CountPlus has made significant progress against its two-year turnaround initiative, and as such the Company is shifting focus to growth. Our M&A capability will be an integral part of this phase,” said Mr Rowe.

Genesis Advisory will work with CountPlus to review current opportunities in the marketplace and grow the mergers and acquisitions capabilities of CountPlus.

The post Countplus appoints new chief operating officer and corporate advisor appeared first on AdviserVoice.

Mark Chapman

Bentleys, a national network of leading mid-tier accounting and advisory firms, has undergone substantial growth in recent years, and is poised to continue its growth trajectory into the new financial year and beyond.

Mark Chapman, chief executive officer, Bentleys Australia and New Zealand, said the network has been focused on executing a well-defined growth strategy on both sides of the Tasman to offer the best expertise to clients and prospects, resulting in key mergers and an expansion of their services.

In the last financial year, mergers included those led by McLean Delmo Bentleys in Melbourne, Bentleys SA, Bentleys Newcastle and Bentleys Tasmania and at the same time, new offices joined the network in the Sunshine Coast, Gold Coast, Tweed Heads and Launceston.

“Our national network has experienced significant growth, particularly in the last 12 months in a very competitive and fast changing market. This has allowed us to better serve our clients as it ensures we can offer them the services and expertise they need, regardless of where they are located,” Mr Chapman said.

With a national footprint in Australia and a New Zealand, we are well placed to service clients across our specialist areas of agribusiness, health and ageing, and research and development. Through the quality and valuable service and expertise we provide, we see this trend continuing in the years ahead.

“Just as last financial year was marked by an increase in Bentleys offices across Australia, we expect the year ahead to follow in the same vein. Expansion and growth remains the main focus for the business with the network able to offer greater efficiencies and services for clients through the benefit of scale. This also extends to New Zealand where plans for further are expansion already underway.”

Mr Chapman also noted the network has been bolstered by a series of recent promotions, appointments and completed merger announcements. These include:

Promotions:

Bentleys Queensland

• Paul Matthews, promoted from manager to associate director, Internal Audit
• Ryan Rostron, promoted from manager to associate director, Business Services
• Rohan Dunsdon, promoted from manager to associate director, Business Services
• Ashley Carle, promoted from associate director to director, Audit
• Lauren Welk, promoted from associate director to director, Business Services
• Jodi Lupton, promoted from associate director to director, Business Services

Bentleys Corporate Recovery Sydney

• Henry McKenna, promoted from associate director to director

Bentleys SA

• David Papa, promoted from director to partner, Assurance & Advisory
• James Allen, promoted from director to partner, Business Advisory

Appointments:

Bentleys Queensland

• Hasi Samaratunga has joined as business systems consultant and will be leading the newly established IT, digital and data analytics advisory services team

Mergers:

• Mclean Delmo Bentleys has completed two mergers, including one with UHY Norton Melbourne and Complete Financial Services
  • Ian Kinder has joined as director, Growth and Strategic Planning, after running his firm, Complete Financial Services, for 25 years
• Bentleys SA has completed its merger with business advisory firm Moore Stephens Adelaide bringing in five partners and 16 staff including:
  • Peppe Fusco, partner, Business Advisory
  • Cristina Clemente, partner, Business Advisory
  • Rick Basheer, partner, Business Advisory
  • Sam Woods, partner, Business Advisory
  • Tim Siebert, partner, Business Advisory
• Bentleys Tasmania has completed its merger with Hobart-based Tenuto Financial, positioning the company as the largest Tasmanian owned state-wide accounting and advisory firm with offices in Hobart, Launceston, Ulverstone and Sheffield

Pleased with the company’s positive year, Mr Chapman firmly understands that they cannot stand still as the market is asking for a greater breadth and depth of services than ever before. “As we continue to grow this financial year, we will be able to respond to client demands by tapping into our specialist teams across the network and internationally through our membership of Kreston – bringing deep expertise across a wide range of services.”

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