Gotsis Rubic & Barbariol, tax accountants Sydney, see a number of target areas of focus for the Australian Tax Office (ATO) in 2010/11 as follows:

Cash Economy

The ATO is focusing their attention on cash economy hotspots, business to consumer transactions and those whose lifestyles do not match the income they report or whose businesses continue to operate with income levels below what would be expected. Business sectors attracting the ATO’s attention include the home renovations sector, some sections of the retail industry such as small value, high turnover retailers and certain sections of the hospitality industry, particularly those establishments offering lower cost products.

The ATO have developed industry benchmarks for more than 100 industries to identify those businesses that may be avoiding their tax obligations by not reporting some or all of their income. In addition the ATO are identifying additional sources of data to match with information supplied in the tax return and business activity statements, such as records of luxury car purchases and tying those purchases back to the taxable income declared.

An additional $107.9 million over 4 years will be provided to the ATO to address small businesses that use cash transactions to avoid tax.

Work Expense Claims

The key work expense claims subject to the ATO’s focus include:

• insufficient documentation available to support motor vehicle and travel expenses;
• claiming for the living-away-from-home allowance when the claimant does not qualify for the allowance;
• home offices, mobile phone and internet expenses.

We remind all clients to ensure they have appropriate documentation supporting their work expense claims. In some instances, this would include documentation in addition to the relevant receipts and invoices. For example, if a motor vehicle is used for both private and work purposes, car logbooks and odometer records should be kept in order to deduct the work related portion of motor vehicle expenses under the logbook method.

Payment of Superannuation Guarantee

One of the ATO’s key priorities is to ensure that employers meet their superannuation guarantee obligations. Industries identified by the ATO as being at high risk of not meeting their superannuation guarantee obligations include the road freight transport, automotive repair and electrical services industries. Employees identified by the ATO as being non compliant will need to pay the additional superannuation guarantee together with additional interest and penalties. In this regard we note that the late payment of the superannuation guarantee (i.e. payments made after the 28th day of the month following end of the quarter to which those payments relate to) are not tax deductible.

Rental Expenses

There are three expense items in the rental statement that the ATO will continue to pay attention to.

• Interest: Only interest on that part of the investment loan that relates to the investment property is deductible and only for that part of the year that the property was rented or available to be rented.
• Repairs and Maintenance: Expenditure that relates to renovations or improvements is not an income deduction but it may be a depreciable expenditure.
• Capital Depreciation Allowance: To be able to claim 2.5% of the cost of a building you must have an appropriate depreciation report from the Developer or from a Quantity Surveyor

Executives and Directors

The ATO are focusing their attention on executive and director remuneration payments, including checking that shares and options received as remuneration are correctly reported. For the 2010 year, there are new rules relating to the timing of the assessability of the discount received under the employee share or option schemes.  In brief, all discounts on share and options provided under an employee share scheme will now be assessed in the income year in which they are acquired, whether they are qualifying or non qualifying. The ability to defer taxation of the share or option may arise where there is a real risk of forfeiture of the share or option. New disclosures have been included in the 2010 tax return following the tax changes in this area.

Offshore Transactions

ATO are using data matching facilities and information from overseas tax offices and financial institutions to identify unreported foreign income. Audits will be directed to those taxpayers where there are discrepancies identified in the matched data.

Self Managed Superannuation Funds

Given the concessional tax treatment applied to self managed superannuation funds, the ATO are working on ensuring high levels of lodgement compliance, with a particular focus on regulatory matters such as loans, in-house assets, borrowings and arms-length transactions.