ATO OFFICE HOT SPOTS
For 2007 Tax Returns

The Tax Office have announced the following occupations they are targeting for work related expenses:

• Tourism industry, travel consultants and guides
• Employees of the fitness and sporting industry
• Employee tradespeople in the construction industry
• Security guards and security employees
• Mining employees

This does not mean that other occupations are safe from Audit. Below is a guide to ATO Audit areas for 2007, and this activity will be across all occupations.

1. Self Education Claims
This has been a particular area of focus for the tax office for the past few years.

To be able to claim self education expenses the education must have the necessary nexus to your current income earning activity. If the study leads to a new job, then there is no claim. If the income comes from a job placement as part of the course, you cannot claim the self education fees, as there is no nexus to the income.

For example
A Pharmacy assistant cannot claim the course costs of the Bachelor of Pharmacy course they are undertaking full time, whilst working part time as a pharmacy sale assistant in a pharmacy.

2. Motor Vehicle claims
Generally you can only claim car expenses for travelling for work, not travelling to work. You must have records to justify the claim. You must have a correct log book if you use this method of claim

Common errors
Claiming more than 5000 Kilometres under the cents per kilometre claim method in the tax return. If you salary sacrifice your car (in other words the employer provides the car as part of your salary package) you cannot claim any running expenses of the car what so ever.

3. Overseas Income
Many Australian citizens receive income from overseas in the way of pensions, interest dividends and rental income. The ATO is active in ensuring this income is declared if it is assessable in Australia.

Tax Offices worldwide are increasingly sharing information with each other and the tax office in Australia uses this information to check returns lodged in Australia.

All Australian residents for tax purposes are required to declare their worldwide income in their Australian tax return.

4. Not Declaring Capital Gains on disposal of shares and property
The Tax Office continue to compare lodged tax returns with share trading and rental property sales data, the tax office obtains from share registries and title offices.

This is an increasing area of tax office scrutiny.

5. Rental properties Owners
The tax office are looking at rental property owners’ tax returns for this tax year with a particular look at claims for Interest, Borrowing expenses, Depreciation and capital allowances and checking the taxpayers who sell their properties are correctly reporting the capital gains and or loss on sale.

Common Errors

• Initial work done to allow the property to be rented being claimed as repairs.
• Expenses being claimed where a property is not available for rent.
• Deductions not being apportioned when non-commercial rates of rent are being charged to relatives or friends.
• Estimating the construction costs of buildings rather than relying on cost estimates provided by independent qualified persons.
• Including land value as part of the construction cost.
• Interest being claimed on loans that are partly or wholly for private use.
• Assets being incorrectly classified as depreciating assets for uniform capital allowance (UCA) purposes.
• Incorrect asset values being used for calculating uniform capital allowances (UCA).
• Travel expenses not being reasonably apportioned when the purpose of the trip is partly or predominantly private.
• Borrowing expenses not being correctly apportioned.
• Capital works being incorrectly claimed as a tax deduction

• Making a claim for clothing claimed when qualifying conditions are not met.
• Claiming for items used both partly work and partly private and not keeping records to determine how the apportionment was determined. This applied particularly to home computer and mobile phone claims.
• Claims made for meal expenses when no overtime meal allowance received.
• Claims when there is no connection to current employment income.

• The loss is a true loss, and not just a paper loss
• The Activity is truly that of a share trader, and not an investor

8. Health Insurance Rebate Audits
Most taxpayers claim reduced premiums from the health fund, but some are claiming a tax offset as well which they are not entitled to.