The end of the financial year is less than two months away, and the Australian Taxation Office (ATO) has revealed which taxpayers will be subject to extra scrutiny.

There are three key areas this year:

• Landlords
• Those working from home
• Capital gains
• Side hustles.

“Within these areas, we have identified common mistakes, and are particularly focused on addressing these and supporting taxpayers and registered tax agents to get their claims right this year,” assistant commissioner Tim Loh said on Monday.

The ATO has given taxpayers their first indication of what not to do this year, after earlier revealing changes to how remote work expenses will be calculated in 2023-24.

The first warning? Don’t merely copy and paste your work-related expenses from last year.

Mr Loh said taxpayers need to be aware of a number of work-from-home (WFH) changes since their last tax return, and ensure they’re recording their expenses using an approved method.

“There have also been some changes in how you calculate things like working-from-home deductions, so don’t be tempted to just copy and paste your prior year’s claims,” he said.

“We know a lot of people are working back in the office more compared to last year.”

Work-from-home changes

As InDaily has explained previously, you’ll need to provide real-time records of your WFH hours to claim related expenses this year, though there was a grace period that ended earlier this year.

From there, it’s all about determining whether you want to use an actual cost, or the revised fixed-rate method to lodge a claim, accountant and Perigee Advisers principal Lisa Greig said.

“Proof, proof, proof – you have to prove everything you are doing,” she said.

“If you can run your work from home like you run your car log, you should be fine, but remember it’s on an actual 52-week basis – it’s not like you can do a 12-weekly one.”

Ms Greig expects many taxpayers who used the 80 cent shortcut method for work-from-home claims during COVID-19 will now be turned off from making expense claims because of the 2023-24 changes.

But those who already had a designated office space in their homes to claim under the actual fixed-cost method previously will fare best switching to the new method, she said.

Landlords on notice

The ATO is also running its ruler over landlords at tax time, with data showing 90 per cent of rental property owners are getting their returns wrong, with income often being left out.

There will be a particular focus on interest expenses, with landlords needing to ensure they correctly apportion loan interest where part of their mortgage was used for private purposes.

“We encourage rental property owners and their registered tax agents to take extra care this tax time and review their records before lodging their return,” Loh said.

“You can only claim interest on a loan used to purchase a rental property to earn rental income – don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income.”

Second incomes under microscope

The ATO is also warning Australians earning second incomes through things like the share economy and social media to report all their income at tax time.

Loh said almost 900,000 Australians now earn second incomes, with many seeking to improve their finances due to the rising cost of living.

Secondary incomes must be declared for the 2023-24 income year, Loh warned.

“We want to make sure people understand that when you do earn money from these side hustles, odd jobs or even cash jobs that you need to declare all this income,” he said.

The warning comes as new McCrindle research shows the majority of younger Australians are considering alternative incomes to combat rising inflation, including through the gig economy and online content creation.

Is your side hustle a business?

To work out whether the ATO would consider your side hustle a business, there are a few key points to consider.

The first is whether the activity is repeated, Loh said.

“If you’re regularly engaging in content creation, for example if it’s on Instagram or Facebook, and you’re earning money from that, that’s considered to be a repeated activity and you’re considered as running a business,” he said.

“Whereas, if you’re having an annual garage sale to sell odd personal items that’s not considered to be a business.”

The second factor is whether you’re seeking to make a profit with the activity – crucially, this is different from actually making a profit.

Additionally, consider whether you operate in a “business-like” way, like having a plan and system for making a profit on a regular schedule.

If your side hustle fits the bill for both those things, it’s most likely a business – and you may need an Australian Business Number (ABN) or to register for General Sales Tax (GST).

And while registering additional taxable income may seem like a hassle, Loh said there could be an upside, with businesses likely to be eligible for a wider range of expense claims.

“You’re eligible for any workplace tax deductions associated with that business as well,” he said.

“We want people to get it right, including all your income and relevant deductions.”

ATO’s access to data

There are penalties for getting it wrong, and this year the ATO will have its sights on those with side hustles who don’t report their income to the government.

From July 1 this year, a new Sharing Economy Reporting Regime will begin, allowing the ATO to access data from a wide range of “electronic distribution platforms” – such as Uber –  that will be cross-referenced by the ATO to reveal income.

“It doesn’t matter whether you are carrying on a business or simply earning additional income through a digital platform, such as a website or even an app, you must keep accurate records of your income and include it in your tax return,” Loh said.

“Every dollar dodged is a dollar that can’t be used for vital services like health and education.

“The ATO needs to ensure there is a level playing field for everyone, with no unfair advantages.”

This story first appeared in our sister publication The New Daily,