The ATO has identified three main areas of focus for this tax season: rental property deductions, work-related expenses, and Capital Gains Tax (CGT). These are areas where mistakes are frequently made and the ATO is now prioritising them.

Rental property deductions

According to the ATO’s review of income tax returns, almost 90% of rental property owners are making mistakes in their returns. Common errors include omitting rental income and making mistakes with property-related deductions, such as over claiming expenses or claiming improvements made to private properties. The ATO is paying close attention to interest expenses and ensuring rental property owners understand how to accurately apportion loan interest expenses when part of the loan was used for private purposes.

It’s important to note that you can only claim interest on a loan if it’s used to purchase a rental property that generates rental income. If your loan includes a private portion, you can only claim an interest deduction for the portion that corresponds to that rental property which earns rental income.

Work-related expenses

The ATO is placing extra emphasis on taxpayers understanding the latest changes to working from home methods. To claim a deduction for your working from home expenses, you can use either the actual cost or the revised fixed rate method, provided you meet the eligibility and record-keeping criteria. Keeping meticulous records can help you choose the most appropriate method for your situation and ensure that you receive the best possible deduction.

Capital gains tax

When you sell assets such as shares, cryptocurrency, managed investments, or properties, you may be liable to pay CGT. To ensure that you meet your obligations and are paying the right amount of tax, it’s essential to calculate the capital gain or capital loss for each asset you dispose of unless an exception applies. If you’ve utilised your primary residence to generate income – such as by renting out all or part of it through Airbnb, or running a business from home– CGT may apply.

It’s crucial to keep records of the income-producing period and the portion of the property used to earn revenue to calculate your capital gain. If you qualify for an exemption, make the election in your tax return. Remember that CGT applies to many assets, so be sure to consult with your advisor to understand your tax obligations.