ATO’s small business focus for 2022 income year
The ATO announced that it will be focusing on the following matters for small business tax returns for the 2021/22 year:
- Deductions that are private in nature and not related to business income, as well as overclaiming of business expenses (especially for taxpayers running a home-based business).
- Omission of business income (e.g., income from the sharing economy or new business ventures).
- Record keeping – including insufficient or non-existent records that are needed to substantiate claims.
The ATO acknowledges that it has been a tough couple of years for many small business owners and encourages taxpayers to act early to find a solution if they are getting behind in their tax obligations, either by contacting their tax agent or the ATO.
ATO updates ‘cents per kilometre’ rate for individuals
The ATO has updated the cents per kilometre rate relating to individual car expenses for the 2023 income year to 78 cents per business kilometre.
The cents per kilometre method:
- uses a set rate for each kilometre travelled for business.
- allows taxpayers to claim a maximum of 5,000 business kilometres per car, per year.
- does not require written evidence to show exactly how many kilometres were travelled (but the ATO may ask taxpayers to show how they worked out their business kilometres, for example by means of diary records); and
- uses a rate that takes all vehicle running expenses (including registration, fuel, servicing and insurance) and depreciation into account.
The cents per kilometre rate was 72 cents for the 2021- and 2022-income years.
ATO to target ‘wash sales’ this Tax Time
The ATO is warning taxpayers to not engage in ‘asset wash sales’ to artificially increase their losses to reduce gains (or expected gains). Wash sales are a form of tax avoidance that the ATO is focussed on this tax time.
Wash sales typically involve the disposal of assets (e.g., cryptocurrency and shares) just before the end of the financial year, where after a short period of time, the taxpayer reacquires the same or substantially similar assets. Such sales are usually done to create a loss to be offset against a gain already derived, or expected to be derived, in certain circumstances, in a tax return.
The ATO’s sophisticated data analytics can identify wash sales through access to data from share registries and crypto asset exchanges. When the ATO identifies this behaviour, the capital loss is rejected, resulting in an even bigger loss to the taxpayer.
The ATO has warned taxpayers engaging in wash sales that they are at risk of facing swift compliance action and additional tax, interest and penalties may apply. Taxpayers are urged to ignore any advice encouraging a wash sale of any asset. The clear advice from the ATO is to check the ATO website or check with an independent registered tax professional and not to rely on advice received through media, social media, or advertisements.