There are a number of reasons why a client’s income tax assessment could look different this year. For example, the low- and middle-income tax offset has ended, and the ATO have also recommenced using any credits or refunds, to pay off debts previously put on hold. To help manage client expectations, the ATO recommend raising these issues with your client prior to lodgement.  You can find a list of reasons your client may get a reduced refund on the ATO’s website. 

The fixed rate of 67 cents per hour worked from home includes:

• electricity and gas (energy expenses)

• home and mobile internet or data expenses

• home and mobile phone usage expenses

• stationery and office supplies.

A decline in value deduction could be claimed as a separate deduction for a shredder used for work purposes. However, the electricity expenses incurred as a result of shredding work-related documents while working from home would be covered by the 67 cents per hour. 

To claim a deduction using the revised fixed rate method of 67 cents per hour, the taxpayer must incur at least one of the expenses covered by the rate per hour as a result of working from home. Carrying out minimal tasks will not be considered to be working from home, for example, just occasionally shredding a few work-related documents.   

For more information check the ATO website.

If a taxpayer uses the actual cost method, they can claim a deduction for the actual additional expenses they incur as a result of working from home. The client must keep records to show they have incurred the expenses as a result of working from home, and show how they have calculated the work-related portion of the expense. 

When running expenses, such as electricity and gas, are used for both private and work purposes, it is necessary to apportion the expense on a fair and reasonable basis. 

Calculating the additional cost of electricity and gas (power) can be done by using the formula (a) x (b) x (c) where:

1. cost per unit of power used (utility bills have this information)

2. average units used per hour, which is the power consumption (this information may be found in the manufacturer information, the star energy rating label or by searching the internet) and is:

   • per kilowatt (kw) hour for each electrical appliance, equipment or light you use

   • per megajoule (MJ) hour for gas heating appliances you use

3. total annual hours used for work-related purposes by checking the taxpayer’s record of hours worked or their diary.

For more information see paragraphs 21 to 25 of Taxation Ruling TR 93/30 Income tax: deductions for home office expenses and Actual cost method.

If a taxpayer has a home office set aside which is used exclusively as a place of business, they are entitled to claim a deduction for a portion of their occupancy expenses (such as mortgage interest and rates) as well as running expenses.

An area set aside by a taxpayer running their business from home (home-based business), will be a place of business.

An employee’s home office will only be a place of business if:

• it was necessary for them to work from home because their employer doesn’t provide them with an alternative place to work, and

• that area of their home is used exclusively (or almost exclusively used) for work purposes and isn’t readily available of being used for any other purpose.

If a taxpayer is entitled to claim mortgage interest expenses, capital gains tax (CGT) will apply when they sell their home. This will be the case regardless of whether the taxpayer actually claimed a deduction for their mortgage expenses. Being entitled to claim mortgage interest expenses is enough for CGT to apply.

CGT won't apply if any of the following occurred with a taxpayer’s home-based business:

• the taxpayer operated their business from a rented home

• the taxpayer didn’t have an area specifically set aside for their business activities

• the taxpayer operated their business through a company or trust.

However, a taxpayer only has to pay CGT in respect of the area of their home used as a place of business and for the periods when they used part of their home as a place of business. In most cases, the percentage of the capital gain that is taxable is the same as the percentage for which the taxpayer could claim a deduction for mortgage interest. This is generally based on the floor area of dedicated area of the home or home office set aside as a place of business. The capital gain may also need to be apportioned on a time basis. For example, if the taxpayer owned their home for 10 years, but only used it as a place of business in the last 2 years, then the taxpayer only needs to pay tax on the capital gain in the last 2 years.

Check the ATO website for more.

Unfortunately, a credit card statement alone is not a sufficient record. To claim a deduction, a taxpayer must have records to prove their claims. 

Records are usually a receipt from the supplier of the goods or services. A receipt must show the:

• name of the supplier

• amount of the expense

• nature of the goods or services

• date the expense was paid

• date of the document.

The ATO app is an easy and efficient way to document your records. You can also find more information about records you need to keep on the ATO website.

To claim a deduction for car expenses using the logbook method or cents per kilometre method, the taxpayer must own or lease the car. Generally, this will only be the case if the car is registered in the taxpayer’s name. 

To claim a deduction for a vehicle that isn’t yours, you:

• work out your actual expenses you incurred for your work-related travel, for example fuel expenses

• claim the deduction in your tax return as a work-related travel expense (not as a work-related car expense)

• can’t use the cents per kilometre method or the logbook method to work out your claim.

If the rental property is a residential premises and it isn’t used as part of a commercial enterprise or a business of renting properties, there is no difference in how a rental property rented through a digital platform such as Airbnb is treated. 

When renting a residential house or unit through a digital platform, like Airbnb, you:

• need to keep records of all income earned and declare it in the income tax return

• need to keep records of expenses that can be claimed as deductions

• don't need to pay GST on amounts of residential rent you earn.

Learn more about homes used for rental or business purposes.

Generally, all records relevant to a taxpayer’s tax affairs should be kept for 5 years.

Provided certain requirements are met, a taxpayer who retains an electronic copy of their records which is a true and clear copy of the original record doesn’t have to keep those records in paper format as well. 

Taxpayers can use any electronic device or app, such as our myDeductions app, to keep their electronic records. However, we recommend backing up your electronic records regularly.

For more information on the requirements for keeping electronic records, see Taxation Ruling TR 2018/2 Income tax: record keeping and access – electronic records and PS LA 2005/7 Substantiating an individual’s work-related expenses.

By law, you and your clients must keep business records, either paper or electronic for 5 years after they are prepared, obtained or the transaction is completed, whichever occurs latest.

Some records may need to be kept for longer periods, such as records relating to capital gains tax events. However, shorter record keeping periods apply for some records for individual clients with simple tax affairs.

While you and your clients are not required by law to keep records of tax returns, schedules, activity statements, tax objections or notices of assessment, we recommend you keep a copy for 5 years.

For more information refer to:

• TR 96/7 Income tax: record keeping – section 262A – general principles

• TR 2018/2 Income tax: record keeping and access – electronic records

• PS LA 2005/2 Penalty for failure to keep or retain records

We highly recommend sharing warning signs with your clients, particularly about ATO impersonation scams, which could protect them from a devastating scam encounter. Also, remind them how to protect their personal information and verify or report a scam if they come across something suspicious. Review your own vulnerability to cyber criminals by checking out the ATO advice and guidance on how to protect your myGovID as well as implementing the Australian Cyber Security Centre's (ACSC) Essential 8 mitigation strategies to help protect your business and client data.

The super health check does not involve or include any reference to concessional personal contributions.

However, this tax time the ATO are asking tax practitioners to remind their clients of 5 simple things they can do to stay on top of their super:

• Check your contact details.

• Check your super balance and employer contributions.

• Check for lost and unclaimed super.

• Check if you have multiple super accounts and consider consolidating.

• Check your nominated beneficiary.

Learn more on the ATO website.

You can request an amendment through the Practitioner Lodgment Service (PLS). Depending on your software provider, you can request amendments to all income tax returns through PLS, including individuals, even if the original return or a previous amendment was not made through the PLS. If you are unable to lodge your amendment via the PLS, you can request an amendment through Online services for agents for partnerships, companies, trusts and super funds only. This can be done using the practice mail function. If you can’t lodge electronically, you can request an amendment using the paper form. Time limits apply. It takes up to 50 business days to process requests made in writing.

Registered tax practitioners are required to exercise their professional judgement when making an assessment about whether a client is a well-established client and whether or not it remains appropriate to undertake proof of identity (POI). 

There are a number of factors to consider when making this assessment, including your relationship and familiarity with the client, the scope of the services, the way you interact with the client, if there has been a change in circumstances, or any discrepancies arise.

If you make an assessment that it is not appropriate or necessary to undertake POI in relation to a well-established client, you must retain a record of your assessment about the appropriateness of undertaking POI for that client. 

You must also comply with our requirements in relation to the frequency of undertaking POI checks and record-keeping, which requires you to:

• make and retain a record of your assessment about the appropriate frequency of undertaking POI steps

• keep a record of the POI checks you undertake for a minimum of 5 years after the engagement with the client has ceased. We recommend you do not retain copies or originals of identification documents. 

Find out more on client verification processes. 

If the client has had a change to their legal name and this differs from an identification document they provide when engaging your services or have provided you in the past, you should request primary non-photographic identification in relation to the name change, for example, a marriage certificate or a document showing the legal change of name. Check out our examples of required evidence in our Practice note for more information.

When sighting verification documents to confirm the identity of a client and/or a client’s individual representative, you must consider if the:

• photo in any identification document appears to match the details that have been provided by the individual (for example, age and gender); and 

• name, address and date of birth match with other details when comparing documentation.  

You will need to exercise professional judgment when determining if a photo ID is sufficient to confirm the identity, or a more recent photo ID is required.

We do not require or recommend you retain copies or originals of identification documents used as evidence to establish the identity of a client or their individual representative. This recognises that the retention of identification documents may increase the risk of registered tax practitioners being targeted by criminals undertaking identity theft. Accordingly, what we require is a contemporaneous record (for example, a checklist) to demonstrate that proof of identity steps were undertaken. 

See our Practice note, specifically paragraphs 24 to 25 (Record keeping), which has guidance on what should be noted.

We understand it’s not always possible to sight a client’s identification documents in person and you will often have to rely on electronic communication. If you engage with clients remotely and use a webcam or videoconferencing to sight original or certified documents, the requirements for client verification are the same as face-to-face. If you confirm the client’s identity, you must make sure you make a record of the proof of identity checks done.

We recommend arrangements are reconfirmed or reviewed with clients regularly (preferably annually). You may also need to provide a new letter of engagement in certain situations, including when there are changes in:

• your client’s circumstances

• any relevant laws or regulations

• the terms or scope of engagement or if there is reason to believe that your client has misunderstood the terms and scope of the engagement.
   

We do not provide templates or sample letters of engagement as they need to be tailored to your individual practice, the services you are providing and the circumstances of the client.

It is important that you use your professional judgment when considering the matters to include in a letter of engagement. However, we’ve provided some suggestions as to what you might consider including in your letters of engagement in our Practice note. 

If you are a member of a recognised professional association, you can also check to see if they offer a template, sample or guidance. If you do use a template or sample as a guide, you should ensure it is tailored to your practice and the circumstances of the engagement.

We recommend you use an engagement letter for any services provided to clients, including straight-forward services, such as the preparation and lodgment of a single income tax return. Remember, it does not need to be complex if you are dealing with simple tax affairs. However, even for simple dealings an engagement letter will:

• establish a clear understanding of the engagement

• ensure you and your client have clear expectations

• assist in avoiding uncertainty and misunderstanding of the fees and services being provided.

Letters of engagement are also an important and effective mechanism to help you comply with the requirements of the Code of Professional Conduct. There are also other legal and professional standards and regulatory requirements under which letters of engagement may be necessary. See our Practice note for more information.

Yes, Code item 3 states that a registered tax practitioner must account for money or other property received on trust from or on behalf of their clients. Examples of money received on trust may include, but are not limited to, the following:

• subject to the terms of a retainer, money held or received in advance by the registered tax practitioner for the purpose of settling or meeting liabilities

• client tax refunds

• money paid to the registered tax practitioner for the purpose of seeking specialist advice.