Former senior director of the ATO and current director of tax communications at H&R Block, Mark Chapman, has outlined his expectations of what will be targeted by the ATO’s auditors in 2016 – with SME asset write-offs in the firing line.
According to Mr Chapman, the ATO will be paying close attention to the instant asset deductions outlined in last year's federal budget.
"The small business community widely welcomed the introduction of the $20,000 instant asset write-off for small businesses in the last federal budget, but the ATO was quick to spot the potential for abuse of these generous new rules," he said.
"As taxpayers start to submit tax returns, including claims under the instant asset write-off rules, we reckon these deductions will be closely scrutinised by the ATO, and there is likely to be high-profile audit action against those who are stretching or breaking the rules."
Other areas expected to be top of the ATO's hit list this tax season are:
- Undeclared foreign income
"The ATO ran an amnesty for taxpayers with undeclared foreign income through 2014, and even extended the deadline into 2015 for those who failed to disclose before the scheme’s original close date in December 2014," Mr Chapman said.
"Despite the generosity of the terms on offer (the ATO wouldn’t look back more than four years and would impose a penalty of just 10 per cent on unreported income), we reckon the ATO would have been disappointed with its haul and will now be looking to come down hard on those who failed to voluntarily come forward."
- The sharing economy
"The ATO made a big deal in mid-2015 of giving detailed guidance to those operating in the sharing economy about what they need to do to comply with their income tax and GST obligations," he said.
"Whether it is Uber, Airbnb or any of the other sharing economy services, we reckon the ATO will be looking closely at those who participate to make sure that the guidance they issued last year is being followed.
"The ATO was caught unawares by the growth of the sharing economy and has had to play catch-up to avoid being left behind in terms of tax collections and voluntary participation. It will now want to make up for lost time and make its presence felt."
- Undeclared capital gains
"As part of the ATO’s data-matching program, it has recently received millions of items of data in relation to share and property transactions stretching as far back as 1985, when capital gains tax was first introduced," said Mr Chapman.
"The ATO will have been scrutinising that data and matching it with the information contained on tax returns.
"We think the results of that exercise are likely to lead to a spike in audits of capital gains that have either been reported incorrectly or not reported at all."
- Rental property income and deductions
"The ATO made various announcements last year about its compliance focus on rental properties," Mr Chapman said.
"It targeted 500 postcodes late last year, with letters warning holiday home owners to check their property deductions to ensure that claims weren’t being made for periods the property wasn’t available for let.
"With property rental (both for permanent lets and holiday lets) a valuable source of extra income for millions of taxpayers, it can be expected that the ATO will follow up on its letter campaign with some targeted reviews and audits this year."