Tax return time is a beautiful time of year. The air smells fresher when you know you’re probably going to get a tax refund. When your income tax return appears in your account, it feels like free money even though it was yours to begin with. You can pay off a debt or buy yourself something special. You deserve it. Unfortunately, the ATO are preparing to crack down on various types of claims in 2021-2022. The party-poopers. Don’t let them ruin tax time for you, learn what they are targeting to maximise your tax return 2021-2022.
In the latest episode of the Australian’s Money Café podcast, CPA Timothy Ricardo from Bishop Collins outlined several crucial tax-tips for your tax return 2021-2022, such as when to lodge your return and how to reduce the risk of getting audited. Follow Tim’s advice to increase your chance of tax return success
ATO Targets for Tax Time 2022
Every year the Australian Tax Office (ATO) targets certain professionals, types of deductions and now, even types of transactions in the form of Crypto. Timothy Ricardo discussed what the Tax office will be keeping a close eye on this tax season. And it seems like they’re out for everyone! Beware! They use data matching from various sources to uncover any potentially unpaid tax.
The main targets on the ATO’s naughty list is:
Target 1: Homes Used to Produce Income.
“So they’re going to start looking at CGT capital gains tax on homes that have been used to produce income and they’ve got access to sources like Airbnb and even all your general local real estate programs that they operate will be data matched.”
Target 2: Crypto Transactions
“The big one they’ve made a lot of noise about is Crypto. So they’re getting data from a lot of the major exchanges the wallets.”
But there is a way to minimise the risk of getting audited for your Crypto transactions according to Timothy:
“Exchanges have a history of very poor tax reports and they don’t even provide tax reports a lot of the time. So I’ve been advising clients to go and source an external crypto tax calculator. This basically links up to their public wallet address and because of the blockchain and in some circumstances, it can go back and recreate your tax history. Just based on that public address.”
Target 3: Work from Home Expenses
”The ATO have done a lot of work in this area over the last few years. So in this particular year. Because of the COVID-19 lock downs that came in place last year, a lot of people will be wanting to claim work from home expenses. So they’ve said that they’re going to be keeping an eye on them.”
Target 4: Self Education
“The courses that people are claiming, they need to make sure that they’ve got a link to their income earning for the deduction.”
These are the main hot spots that the ATO will be keeping an eye out for when looking at expenses this year. But how do you keep out of trouble, and make sure you don’t get slugged by the ATO? Read their detailed four priorities this tax time.
The Three Golden Rules to a Successful Tax Return 2021-2022
To ensure your expenses are legitimate and the ATO doesn’t come looking for you, Timothy Riccardo describes the three Golden Rules that will help ensure you don’t get audited.
Rule One: All Claims Are Linked to Your Income
“Just always make sure that everything you claim has a link with your assessable income. They call it a Nexus. It must be linked with your income earning for the deduction.”
Rule Two: The Expense Was Paid by You
“The expense has been incurred by you in the relevant income year. It cannot be claimed if it has been reimbursed by your employer.”
Rule Three: The Expense Must Be Validated
“You must have adequate substantiation. So just having a bank statement, or a credit card statement is not enough. You need something else such as a document from the supplier of the goods or service. This is something that that people get unstuck on.”
When is the Best Time to Lodge an Australian Tax Return in 2021-2022
It is best to wait for more than a month after the end of financial year (July 1st) before completing a tax return.
Pre-filled information for your tax return such as bank account interest and share dividend information can take a month or so to get through to tax agents. If your tax return is lodged too early in July, before the data matching and prefilled data comes through, you run the risk of your data not matching up with the ATO. This increases the risk of being a audited by the tax office.
Data Pre-Fills may not be complete and can get you audited
Timothy Ricardo explains the risk of lodging your tax return too early and the implications which are now a common occurrence.
“The biggest cause of audits for that I’ve seen in the last few years have been just these automatic adjustments that the ATO sends through because they’ve gotten data throughout the year or after you’ve watched your return that you haven’t reported on your return. And it’s so seems so easy to load your return these days with, with all the software that’s around and people aren’t adequately checking that and so you’re going to always hold off until after you’ve seen that initial push of all that data that comes in early July and even into August. So you must be a little bit careful there.”
The data-prefills is not a perfect system, as it gets sent through to the ATO from various sources. It is important to be aware and try not to miss any information. As Timothy Riccardo continues…
“If you are lodging early, just make sure that you’re checking that everything has been included because the pre-fills aren’t always complete or they continue to be adjusted over those first few months. And data comes from everywhere.”
Basically, it’s best to not rush in to lodge your tax return 2021-2022. Wait for all the prefilled data to come through to ensure the Tax Man doesn’t come after you.
Family Trust Distribution Changes in the 2022 Tax Year
The ATO is cracking down on family trusts. They want to ensure that if a family trust distributes to a beneficiary, such as an adult child, the money is not transferred back to the parents who are the trustees of the trust. This type of transaction will not satisfy the ATOs new rulings.
Timothy Riccardo goes into detail, for this complicated tax matter that should be discussed with a tax professional.
“Family trusts have distributed income to family members that might be at a lower tax rate, without actually paying them all the money so they’ve decided to make a distribution to someone to try to save a bit of tax, and so the trustee might save some tax there, but they haven’t physically paid the money to the beneficiary. This is called a reimbursement agreement.
“There’s an old anti avoidance provision which goes back to the 70s called Section 100A, and this anti avoidance provision gives the ability for the ATO to go to go back in an unlimited number of years and amend returns and tax trustees at the highest marginal rate. “
As you could imagine, trustees need to be careful about who they are distributing money to this year. And that they are not entering a “reimbursement agreement”, as the ATO is looking for any feeding back or reimbursement of that money back to the trustee.
Key Takeaways
Some great advice from Timothy Ricardo, accountant and director at Bishop Commons Chartered Accountants. If you aren’t aware of what the ATO is targeting every year, you could make a silly mistake that could cost you money. The Top insights from the Podcast are:
- The ATO is targeting various professionals and deductions, be aware of their naughty list this year (and every year).
- Follow the Three Golden Rules for a successful tax return
- Wait a month or so for the pre-filled data to be available and ready before lodging a tax return.
- Always seek the help of your friendly, local accountant. Don’t try do your own taxes, hire a professional.
That was a great interview with great insights. Please let me know if anything was news to you, or even you have a tax tip. Or feel free to cruise the rest of the site or drop a comment below.
M. Moneyman
Please note: Everything discussed here and on the linked Money Café podcast is general information and not advice. as is always the case on this show. Timothy Ricardo, accountant and director at Bishop Commons Chartered Accountants.
