ATO focus areas for 2023 tax returns

ATO Focus Areas for 2023
Every year the ATO announces areas they are focussing on when reviewing tax returns, here are the big ones for 2023 to be aware of
Outline

ATO focus areas for tax returns in 2023

  • The ATO announces focus areas for tax returns each year.
 
  • Work related expenses & capital gains are focus areas.
 
  • More scrutiny is placed on reviewing returns.

Every single year the ATO will announce some key areas their auditors will spend a bit more time and effort reviewing when tax returns are submitted.  They don’t keep any of this information a secret, in fact they send out a press release and distribute the information to the public as well as the tax accounting industry. You can read all of their releases here on their website. 

So apart from the ATO providing a number of online services to help a business manage your tax affairs, they provide lots of information about new rulings or regulatory changes, updates to any tax policies and other information that is readily available. Of course, you can read all of these yourself or alternatively, you can engage a small business tax accountant to decipher all of that information for you & figure out what is most relevant to you.

The Australian Taxation Office (ATO) announces its targeted areas for tax returns to promote transparency, fairness, and compliance with tax laws. The ATO has a responsibility to ensure that individuals and businesses are meeting their tax obligations correctly and reporting their income accurately. By highlighting specific focus areas, the ATO aims to provide guidance and increase awareness about potential areas of non-compliance or tax risks based on current environmental, economic or social trends that are happening at the time.

There are several reasons why the ATO announces its focus areas:

  1. Compliance: By identifying specific focus areas, the ATO aims to encourage taxpayers to review their tax affairs carefully and ensure compliance with the tax laws. It serves as a reminder that certain transactions or activities may attract closer scrutiny and should be reported correctly. That is why it makes a lot of sense for any business owner to use an accountant that is experienced at not only tax return processing but compliance or even audits to minimise any potential issues.

  2. Risk management: The ATO uses data analytics and risk assessment techniques to identify sectors or activities that may present higher risks of non-compliance or tax evasion. By announcing its focus areas, the ATO aims to mitigate these risks by increasing scrutiny and encouraging voluntary compliance within those areas. All of this information is made public so that business owners, individuals and even tax accountants are all very aware of what they will be looking closer at.

  3. Education and guidance: The ATO recognises that navigating the tax system can be complex for individuals and businesses. By announcing focus areas, the ATO provides educational materials, guidelines, and resources to help taxpayers understand their obligations and ensure accurate reporting.

  4. Deterrence: Publicly disclosing focus areas can act as a deterrent for potential tax evasion or non-compliance. By increasing awareness about specific areas of scrutiny, the ATO aims to discourage taxpayers from engaging in questionable practices. Engaging a local accountant can help you in this regard as we will provide advice and guidance to ensure everything submitted is compliant.

  5. Resource allocation: Announcing focus areas allows the ATO to allocate its resources effectively. By focusing on specific sectors or activities, the ATO can concentrate its efforts, conduct targeted audits, and improve the efficiency of its compliance activities. Its true they can’t chase every single area, person or business, but eventually if your affairs are not in order you run the risk of a risk review or audit, learn about what that process entails here.

It is important to note that the ATO’s focus areas are not an exhaustive list of all potential tax issues. Taxpayers are still required to fulfil their obligations and report all income accurately, even if it falls outside the announced focus areas.

 

Work related expense claims for business owners

‘We continue to see shifts in the way Aussies are working, and it’s important to consider whether your claims reflect your working arrangements this year.  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. We know a lot of people are working back in the office more compared to last year,’ 

Mr Loh said.

The biggest change for any business owner in the last few years has been where you, or your employees, are working. In the past it was pretty simple for most business owners especially if it was an office based operation. You & your employees would turn up to work each day and use the provided facilities. 

Although, as we all know this has changed dramatically in the last few years and now the workforce in Sydney is quite mobile and able to work remotely from home. This has changed the way most businesses operate and it means that either you as the business owner or your employees may be entitled to claim working from home expenses as a deduction in your tax return.

There are different methods available and in 2023 the ATO is particularly focused on ensuring taxpayers understand the changes to the working from home methods so they can substantiate any claims. This extra scrutiny will affect sole traders, business owners running a service-based operation as well as those who have a typical office-based business. 

Business owners can claim working from home expenses even if you have an office, shop or warehouse that you normally operate from. If you have an office at home or an area that is set aside to complete work then it may be possible to claim some of this as an expense. To claim working from home expenses as a deduction, a few methods include the actual cost or the revised fixed rate method. 

It is important to understand the eligibility and record-keeping requirements to be able to do this though. So we advise all business owners to ensure they are keeping good records so there is flexibility to choose the correct method that suits your circumstances and gives you the best deduction for this financial year. The same advice should be communicated to your staff as well.

Where we see the greatest source of errors is the method chosen, not having good records of when work was carried out or getting confused between what is considered working from home vs travelling to/from work etc. Our tax accountants can help provide the right advice and guidance in these areas.

Capital gains tax for business owners

Regardless of your structure, selling your business is considered to be selling an asset. This means you make a capital gain on the sale, which means you may then have to pay capital gains tax. A capital gain refers to the profit you make on the sale of an asset. There are certain limits or caps for capital gains tax, the lifetime CGT cap for 2021/22 is $1.615 million (indexed annually) and operates separately from the non-concessional contribution (NCC) and concessional contribution (CC) caps.
 
Capital gains tax (CGT) comes into effect when you dispose of assets such as shares, crypto, managed investments or properties. To ensure you are meeting your obligations and paying the right amount of tax, you need to calculate a capital gain or capital loss for each asset you dispose of unless an exemption applies. How this is done for a business, its owner and/or an individual will depend on your specific circumstances.
 
With the huge rise in property values in Sydney over the last few years, the ATO has identified this as an area that some people may try and take advantage of by not disclosing the full value of the gain.

Getting a tax return processed in 2023

While the specific rulings may change or what you are able to claim for will differ from year to year, at the end of the day the golden rule that hasn’t changed is that if you can’t substantiate it, you can’t claim it. That is why it is so crucial for business owners to have really solid processes to keep invoices, receipts and bank statements for all expenditure & income. This is why we get asked to help local businesses move to online accounting software like Xero so that these administration tasks become much easier to manage.

Rick & Bryn
Rick & Bryn

Experienced accountants who love helping other business owners in Sydney to maximise profits, improve cash flow & grow their business.

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At Fitzpatrick and Robinson our purpose and reason for being is to help business owners make more money, pay less tax while growing in a sustainable & methodical way. We have a team of bookkeepers, accountants, tax accountants for business, a CPA, Xero accountant specialists while also providing business advisory services.

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