Tax Time 2021: Avoid costly tax mistakes

TAX TIME: Know what you can claim for working from home. Picture: Shutterstock
TAX TIME: Know what you can claim for working from home. Picture: Shutterstock

IF you have been working from home and hope to claim work-related expenses, expect the Australian Taxation Office (ATO) to be paying attention.

With many more people still expected to be working from home than during the pre-COVID-19 pandemic period, expenses would be one of three key areas monitored in 2021, ATO Assistant Commissioner Tim Loh said.

The other key areas of interest would be rental properties (both income and allowable deductions) and capital gains (from property, shares and cryptocurrency).

Working from home

Last year, Mr Loh said 4.39 million people claimed working from home expenses, up from the previous year of over 3 million people.

"We expect working from home expenses to go up, particularly around home office expenses, but we expect work-related expenses, such as travel expenses, to come down quite significantly."

There are now several ways to calculate working from home costs - no, you can't claim for your toilet rolls, your coffee or your mortgage. The fixed-rate and actual cost methods remain, which involve working out the actual extra costs involved in working from home. But a temporary shortcut method introduced at the height of the pandemic last year is still available for tax time 2021.

"It works like this: You work out the number of hours you've worked from home and multiply that by 80 cents per hour, and that is your deduction," Mr Loh said. "I think the best thing about it is that it's easy. All you need to do is record the number of hours you've been working from home. Multiple people living under the same roof can claim working from home expenses using the shortcut method."

It's an all-inclusive method, covering all your running costs, technology and depreciation of assets. You will still need a record, such as a diary or a timesheet, as part of the claim.

Rental properties

"It's an area in which we've noticed that many people make mistakes," Mr Loh said.

The Airbnb income you've been getting? It needs to be declared, along with any other third party payment, as part of your rental income.

"On the deduction side, it's really important to remember that you can only claim deductions directly related to the rental property - for example, you can't claim for personal travel to the rental property," Mr Loh said.

It was also important to claim deductions over time rather than immediately.

"If you've done a 50k kitchen reno for the rental property, that's something that can't be claimed outright; it has to be deducted over time."

If you have refinanced or redrawn an investment mortgage to buy a boat, car or take a holiday, you can't claim an interest deduction related to that purchase.

Capital gains

There are major areas of capital gains that the ATO is watching in 2021: rental property sales, shares and cryptocurrency.

It is important to make sure any property sale gain or loss makes up part of your tax return, along with profits and losses from shares. Include it in your tax return, whether you are completing it yourself, through MyGov, or a tax agent.

"We've noticed a lot more people have been investing in shares during COVID, and the share market has done really well in that same period," Mr Loh said.

With the rise of cryptocurrency, investors need to be aware that taxable transactions need to be disclosed as part of a tax return. There is more information available on the ATO website.

Know your claims

"We want people to make the deductions that they can, nothing more, nothing less," Mr Loh said.

To help you work out what you can claim, the ATO has created nearly 40 occupation and industry guides to show what can count as expenses.

Most of all, it is important to keep records.

"Trying to find that receipt from last year can be like a needle in a haystack," Mr Loh said.

While the shoebox under the bed is still a workable option, technology is there to help.

The ATO app has a 'My Deductions' tool, allowing you to snap a photo of your receipt. Come tax time, all you have to do is upload it if you are doing your own, or email it to your tax agent.