The Australian Taxation Office (ATO) has shared the specific risks it will be monitoring for the 2024-2025 tax year. Following on from the small business focus areas identified in Quarter 4 of the this year and on the warnings it issued for the last financial year, there are a number of issues that remain firmly at the top of the list when it comes to tax compliance. As the 2025 end of tax year approaches, the ATO is sharpening its focus on several key areas to ensure compliance and integrity within the tax system. This year, the ATO is particularly vigilant about claims for rental property deductions, work-related expenses, cryptocurrency and undeclared income from the sharing economy. If you’re preparing for tax time, understanding and ensuring you’re fully compliant in these areas can help ensure you get your lodgment right the first time. Let’s take a look at the ATO focus areas for tax time 2025 in a bit more detail.
ATO Crackdown: 4 Key Areas To Get Right For Tax Time 2025
1. Rental Property Deductions
Investment properties were a firm focus at tax time in 2024 and the ATO continues to scrutinise rental property deductions closely, ensuring that claims are legitimate and accurately reflect expenses incurred. Recent audits from the tax office indicate that 90% of rental property owners are getting their tax returns wrong.
According to ATO Assistant Commissioner, Robert Thomson: “People aren’t apportioning correctly between interest relating to private use and the interest that relates to the income they’re generating from their investment property.”
Common areas where taxpayers might encounter issues include:
- Repairs vs. Improvements: It is crucial to differentiate between repairs and improvements. Repairs, which restore an item to its original condition, are immediately deductible. In contrast, improvements, which enhance the property’s value, must be depreciated over time.
- Interest Deductions: Only the interest on loans used to purchase or renovate a rental property is deductible. Loans used for personal expenses or to purchase a property that is not rented out cannot be claimed.
- Private Use: Expenses related to periods when the property is used for private purposes are not deductible. It is essential to apportion expenses accurately if the property is only rented out part of the year or used by the owner at any time.
The ATO employs sophisticated data-matching techniques and collaborations with financial institutions to identify discrepancies and ensure compliance. Rental property owners should maintain detailed records and seek professional advice to ensure their claims are accurate and justifiable. A registered tax agent can help ensure your tax return is accurate.
2. Work-Related Expenses
As in the previous couple of years, work-related expenses are another area under the ATO’s microscope. Changes were made in 2023 to the fixed rate method of calculating a working from home deduction and taxpayers were required to keep more detailed documentation. However, as these rues have now been in place for a couple of years the expectation is that you must have comprehensive records to substantiate your claims.
“Copying and pasting your working from home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’. Your deductions will be disallowed if you’re not eligible or you don’t keep the right records.” Mr Thomson said.
To avoid issues, taxpayers should adhere to the following guidelines:
- Substantiation: Ensure all claims are supported by receipts and detailed records. Estimates or round figures can raise red flags.
- Direct Connection: There must be a direct connection between the expense and earning income. Personal or unrelated expenses are not deductible.
- Occupation Costs: Deductions for costs like rent, rates or mortgage interest are not allowable unless you’re running a business from home.
Accurate record-keeping and adherence to ATO guidelines are essential to ensure compliance and avoid audits or penalties.
Remember, there are 3 golden rules for claiming a deduction for any work-related expense:
- you must have spent the money yourself and weren’t reimbursed,
- the expense must directly relate to earning your income, and
- you must have a record (usually a receipt) to prove it.
3. Undeclared Income from the Sharing Economy
The rise of the sharing economy has introduced new challenges for tax compliance. Platforms like Airbnb, Uber, and various freelancing sites have made it easier for individuals to earn income that may go undeclared.
The ATO is particularly focused on:
- Rental Income: Income earned from short-term rental platforms must be declared. This includes not only the rent received but also any related fees and charges.
- Ride-Sharing and Delivery Services: Income earned from ride-sharing, food delivery, or other gig economy jobs must be reported. This includes tips and bonuses in addition to standard earnings.
- Online Freelancing: Earnings from online freelancing platforms must be declared. This includes income from both domestic and international clients.
The ATO collaborates with sharing economy platforms to access data and identify undeclared income. These sophisticated data matching systems mean that if you decide to not report your income from these platforms then you are much more likely to trigger a review by the ATO. Participants in the sharing economy should maintain comprehensive records of their earnings and report them accurately to avoid penalties.
4. Cryptocurrency Investments
Cryptocurrency and crypto based business models are an emerging area of focus for the ATO. Australian tax payers have been warned that they need to report all cryptocurrency related capital gains, losses and income in their tax returns. The Australian Taxation Office treats cryptocurrency as property for tax purposes. This means that individuals and businesses are required to pay capital gains tax (CGT) on cryptocurrency transactions, depending on the profits they make.
When you sell a cryptocurrency asset you need to work out whether you made a capital gain (i.e. you made a profit) or a capital loss (i.e. you lost money) to determine how much capital gains tax (CGT) you’re required to pay. You need to report your gains and losses in your tax return and pay income tax on net gains.
It’s also important to understand whether you’d be considered an investor or a trader for tax purposes. If you buy and sell assets regularly, you may be considered a trader, which changes the taxation treatment of any gains or profits you make on your asset sales.
The advice is also to not rush to submit your tax return, particularly if you received income from multiple sources. “By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO.”
As the ATO intensifies its focus on rental property deductions, work-related expenses, cryptocurrency and undeclared income from the sharing economy, it is more important than ever for taxpayers to be diligent and compliant. By understanding the ATO focus areas and maintaining accurate records, taxpayers can navigate their obligations confidently and avoid the risk of audits and penalties. If in doubt, seeking professional advice from the tax experts at MGI can provide the necessary guidance to ensure compliance and peace of mind in the 2025 tax year.
Check out our recent blog on Personal Services Income (PSI) to ensure that you are categorising your business and services correctly.
For more information or personalised advice on your tax obligations, feel free to reach out to the experts at MGI South Qld. We’re here to help you navigate the complexities of the Australian tax system with ease and confidence.
You might also be interested in our most recent blog on the ATO small business focus areas for Q4 of the 2024/25 financial year.
