Tax 2023 - What's New and What Not to Do

The time is nearly here once again for the lodgment of our Individual and Business Income Tax Return. Each financial year brings with it changes, updates and new target areas for the ATO.

Discussed below are some key pieces of tax time information for 2023:

1. ATO Data Matching expanding
Each year the ATO widens the net around the information they gather directly from external sources. In recent years many would notice that their Payment summary is directly provided to the ATO however there are some surprises in the net for many. The ATO’s technology can now collect:
a. Investment transactions including share purchases and disposals, cryptocurrency trading and income received from investments including  dividends and trust distributions
b. Interest income on all bank accounts held
c. Rental Property transactions during the year including loan matching for interest and borrowing cost deductions.
d. The purchase and sale of Real Property including main residences, investment properties etc
e. Novated lease arrangements with your employer that result in Motor Vehicle benefits being provided
f. Government Support payments

The key take away from the above list is to ensure you have included all income when collecting your tax information, including capital transactions and investment activity. If income is missed from your Income Tax Return, the ATO may automatically amend your lodged return and you may have an unexpected debt in the future.

2. Working from home deductions
During the peak of Covid where working from home was “the new norm,” the ATO provided concessional methods for calculating how much an employee could claim for their increased utility costs. However, the shortcut method ceased as of 30th June 2022.

As many businesses have returned to normal operations, there are still many employees who have converted to a more flexible arrangement. In light of this, the ATO have provided more structured guidelines as to what can be claimed for work from home deductions.

The Revised fixed rate method is applicable from 1st July 2022 and relevant for the 2023 Income Tax Return. The rate has increased from the previous 52 cents per hour to 67 cents per work hour and covers thing such as:
• Energy Expenses including heating, cooling and lighting for the area you work from
• Phone Usage
• Internet
• Stationary
• Computer consumables such as print paper and ink

Separate claims would then be made for:
• Decline in value assets (computer and office furniture)
• Repairs and Maintenance of assets
• Cleaning costs for the dedicated home office

One thing to remember however for using this method is that the ATO not accept estimates or a 4 week representative diary from 1st March 2023. It is now a requirement from the ATO that work from home hours should be recorded for the whole year and acceptable formats include:
• Timesheets, rosters,
• Logs of time spent accessing employer or business systems
• Diary for the full year

The second method available is the Actual Cost Method. This method is unchanged from previous years and is based on the actual costs incurred that relate directly to the use of private assets and utilities for work related costs. Not everyone can use the actual cost method to claim work from home as there is criteria that needs to be met including:
• Your work from home resulted in additional expenses e.g. use of home internet for work instead of the office internet
• You have a record of purchases and bills that relate to the additional expenses
• You have a record of the hours and days that you have worked from home
• You have a dedicated work space – you do not incur additional expenses if other members of your household are in the same room while you are working from home.
• The actual work-related use can be accurately apportioned from normal living costs

3. Purchasing Assets and Equipment
In many instances, an employee may find that they have purchased additional items for their dedicated work space to improve comfort and efficiency that haven’t been reimbursed by the employer. In this case, there is an opportunity to claim a deduction for the business use based on a number of factors:
• If the item purchased such as office furniture, printers, phones etc that are for your dedicated work space is under $300 then an immediate deduction can be claimed
• If the item is above $300 then it must be depreciation and claimed over the effective life of the item.

4. Claiming Motor Vehicle Expenses – Cents per KM Method
Work related vehicle expenses are a common deduction for many employees where they have used their own motor vehicle in the course of performing their duties as an employee. In most instances this will occur where an employee travels between different work sites or undertakes trips at the direction of their employer with a direct connection to the generation of business income.

For most employees the easiest way to make a claim for vehicle use is by utilising the fixed rate cents per kilometre method that allows up to 5000km to be claimed. For the 2023 financial year the rate per kilometre has increased from 72 cents per km to 78 cents per km.

The ATO as part of their Hot Spot areas for 2023 have identified that they will be closely reviewing claims made by employees for motor vehicle travel as many employees simply claim 5000km with no substantiation or claim where they have not met the relevant criteria.
It is imperative that employees maintain records to support their claim for kilometres travelled other than two and from work.

5. ATO Focus Areas – 2023
The ATO have indicated that 2023 will see an increased focus on transactions relevant to individual employees particularly through deductions claimed against employment income as well as rental property and investment transactions.

The ATO have confirmed that data matching technology has improved to now include 17 of the country’s largest mortgage lenders to confirm interest deductible against rental property income.

They have also confirmed that income producing activities from residential properties will be in their sights particularly for home stay arrangements such as Airbnb and Stayz. The ATO have identified that many taxpayers do not understand their exposure to capital gains tax where the primary residence is now being used to produce income which can in many instances create an income tax liability.

The ATO also believe that with the Low and Middle Income Tax Offset ceasing in the 2023 income tax year, there is a higher chance that employees will look to maximise their deductions to increase their Income Tax Refunds. Therefore their focus is to identify deductions that cannot be substantiated and meet the relevant conditions of deductibility.

The Key rule is: If you cannot substantiate it, you cannot claim it!

Not sure what you can do?

June is the perfect month to get ready for tax time. Go through all of your records, diaries, tax invoices, work records and collate together all information that you may think is relevant for Tax Time 2023.

When you make an appointment with one of our experienced Tax Accountants we can then review what you have collected and let you know what you can claim as we move into the 2024 financial year.