ATO Focus Areas: Common Mistakes to Avoid This Tax Time

Each year, the Australian Taxation Office (ATO) announces areas that will receive increased scrutiny during tax time. With enhanced data matching capabilities and access to information from employers, banks, government agencies and other third parties, the ATO is continuing to focus on ensuring taxpayers are reporting income correctly and only claiming deductions they are entitled to.

While most taxpayers do the right thing, it is worth taking a few moments to review some of the common areas attracting ATO attention this year.

Work-From-Home Expenses

Working from home remains a key focus area for the ATO.

If you are claiming work-from-home expenses, it is important to ensure you are using the correct method and maintaining appropriate records to support your claim. The ATO has made it clear that estimates are no longer acceptable where records are required.

The ATO is also paying close attention to claims that appear excessive compared to a taxpayer’s occupation or circumstances, as well as situations where taxpayers attempt to claim the same expense twice. For example, some expenses may already be included under a fixed rate claim and cannot be claimed separately.

Before lodging your return, take the time to review your claim and ensure it is supported by appropriate documentation.

Rental Property Claims

Rental properties continue to be an area of significant ATO scrutiny.

The ATO is taking a closer look at holiday homes, short-stay accommodation and properties with mixed private and income-producing use. Particular attention is being given to situations where properties are not genuinely available for rent or where deductions are being claimed for periods of private use.

Property owners should ensure all rental income is declared and that records supporting deductions are maintained.

Contractor Income & Business Reporting

The ATO continues to use information reported through the Taxable Payments Reporting System to identify contractors who may not be reporting all of their income.

Businesses operating in industries such as building and construction, cleaning, courier services, road freight, information technology and security services may be subject to additional reporting requirements.

Contractors should ensure all income has been correctly reported and reconcile their records before lodging their tax return.

Trust Distributions

Trust distributions remain a significant area of ATO focus.

The ATO is particularly interested in arrangements where trust income is distributed to one beneficiary, but the financial benefit is ultimately received by another person or entity. Arrangements involving adult children, corporate beneficiaries and circular distribution arrangements continue to attract scrutiny.

Trustees should ensure trust distribution decisions are properly documented and that distributions are made in accordance with the trust deed and current ATO guidance.

Lifestyle Assets

The ATO is continuing to monitor situations where personal assets are incorrectly treated as business assets.

Examples may include motor vehicles, boats, holiday homes, aircraft and other assets that are used partly for private purposes.

Where deductions or GST credits are claimed, taxpayers should ensure they can demonstrate the extent of business use and retain appropriate supporting documentation.

GST Refund Claims

Businesses claiming GST refunds should ensure all claims are supported by genuine commercial transactions and valid tax invoices.

The ATO continues to review arrangements involving related entities, unusual transactions and claims that appear inconsistent with a business’s normal activities.

Maintaining accurate records and ensuring GST reporting reflects actual commercial activity can help minimise the risk of ATO review.

Succession Planning Arrangements

The ATO has increased its focus on succession planning and business restructures, particularly within privately owned groups.

Changes involving business structures, trusts, companies or asset ownership can have significant tax consequences if not managed correctly. It is important to obtain advice before implementing restructuring arrangements to ensure tax obligations and reporting requirements are properly addressed.

Good Record Keeping Remains Key

Many ATO reviews and audits can be resolved quickly where appropriate records are available.

Maintaining accurate records, retaining supporting documentation and seeking advice before entering into complex arrangements remain some of the best ways to reduce tax risk and ensure compliance.

If you have any concerns about your tax position or would like assistance reviewing your circumstances before lodging your return, please contact our office.