Taxpayers should beware when lodging returns this year, according to an email sent by the Australian Taxation Office (ATO) advising of a crackdown on common claiming errors from July 1.

If a tax return is flagged by the ATO for being higher than expected, it will be paused for a period of 28 days, during which taxpayers will need to provide evidence of their claims, the email sent out this week said.

Deduction figures will be adjusted “to nil” if the correct supporting documentation cannot be provided in time.

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The ATO also said it will “not grant an extension as the documentation should’ve been available when the tax return was lodged.”

The ATO further warned that even if a tax return isn’t stopped for review at the time of lodgment, it may be audited anytime within the next two years

“It is our responsibility to make sure that everyone pays the right amount of tax. By meeting your tax obligations, you’re helping to support a fairer tax system.”

People who work from home and rental property owners, as well as claims much larger than those made by similar workers in the claimant’s industry, will be under the ATO’s magnifying glass in 2024.

So for those lodging claims without an agent, getting the most out of their tax return can be a daunting task.

Even genuine deductions can ring alarm bells for the ATO because automatic data systems are the “main tool” used to trigger audits that can easily lead to a rejected return.

Finance and accounting firm CPA Australia spokesperson Gavan Ord told 7NEWS.com.au how to navigate the deduction grey areas — and said sometimes all you needed to claim big ticket items was a simple note from an employer.

In the end, he said everything came down to three tests: Did you spend the money? Were you reimbursed? Was it directly related to income earning?

Working from home

The ATO won’t be making it easy for Australians working from home.

If you haven’t already been meticulously logging the hours worked from home since the very start of the financial year, it might not be worth claiming deductions using the fixed rate of $0.67/hour, Ord said.

“The ATO has been pretty clear that you need to have kept records from the start about the number of hours you’ve worked from home,” he said.

“You can’t retrospectively recreate a logbook with different coloured pens, which was the old trick.

“They’re being quite strict on keeping suitable records from the start. You might be able to look in your Outlook calendar and develop a record from that, so you can access information from other sources to build up proof.”

Other than the fixed rate method for working-from-home deductions, the only alternative was the actual cost “method” which Ord said is “more difficult”.

It requires gathering all your bills and then splitting them to find the amount apportioned solely to the home office area, which can be worked out using calculations based on the floor space.

“There has been talk of working out how much power your laptop uses or your lamp and, to me, that’s just not practical for anyone,” Ord said.

If the actual cost method proves too difficult, Ord advised taxpayers to cut their losses and simply “claim what you can prove” using the fixed rate method, and resolve to keep track of hours worked from home “better in the next (financial) year”.

Claims compared for consistency

Workers within the same industries are compared to each other by the ATO, so that any higher-than-usual deductions within the sector stick out to the tax office — it’s called the “nearest neighbour” program.

That means that if taxpayers deduct an expensive item uncommonly purchased by people in a similar role, it could raise red flags.

“The ATO collects huge amounts of data, not just from tax returns but from other sources and from that, they can get a pretty good picture,” Ord said.

“If someone is claiming at a lot larger than the average (person in that role), that triggers the ATO to at least starting to ask questions as to why your expense claims are well out of proportion to someone else in your same occupation.”

While Ord said that “a truck driver deducting a crocheting course” would stand out to ATO, he said that large deductions for items typically relevant to one’s specific profession aren’t as likely to be flagged.

“It has to be directly related to your job,” he said.

A letter from an employer confirming the expenses were necessary for work should be sufficient in appeasing the ATO, should it begin to question the deducted purchase.

Record-keeping exemptions debunked

While there are about $650 worth of deductions that can technically be exempt from record keeping, according to the ATO, Ord said taxpayers should be prepared to answer questions from the tax office.

“While you don’t need to keep receipts, you still need to be able to prove that you spent the money, Ord said.

Work expenses up to $300, and laundry up to $150 can be claimed without lodging records of purchase, but the ATO could still follow up for proof later.

Small expenses — like stationary, or coffees paid for during work meetings — up to a total amount of $200, can also be claimed without providing record-keeping, but you may still need to prove you paid for them, and that you were not reimbursed.

“People think, oh you can claim $299 and the ATO won’t look, however the ATO can ask for proof that you actually spent the money and that you weren’t reimbursed,” Ord said.

“It’s a fallacy to believe that you can just claim $300 without any questions. You still need to prove it, if asked.”

Work travel takeaways

While travelling to and from work is not considered a deductible work expense, people who have to transport bulky equipment and items for work can claim taxi and ride-share trips used for those instances.

Photographers who have to carry gear and props, or even tradies who have to carry tools, are all able to claim their travel — there will just need to be no option to store these items at the workplace.

Taxpayers will have to prove that if the ATO asks questions, but a letter from an employer should suffice.

Sole traders would claim this type of travel as a business expense, rather than a work-related deduction.

Keeping track of travel for work purposes is also different to logging hours worked from home, Ord said, adding that taxpayers can “keep records for a 12-week period, and that can be representative of the entire year”.

Rental renovation red flags

The difference between rental repairs and renovations is a fine line, according to the ATO.

If the work improves the value of the house, it is considered a renovation and cannot be claimed, but the price of a repair which keeps the value as it was, before any damage, can be deducted.

It’s one of the key areas the ATO will be cracking down on, so record keeping relating to actual damages is important for anyone claiming deductions that might raise eyebrows at the tax office.

Replacing a smashed window pane is a repair, while replacing a deteriorated wooden window frame with a new metal window frame is a grey area, according to Ord.

“That might be OK if you can no longer access the wooden frame windows,” he said.

But say you go from single-glazed windows to double-glazed windows, that definitely becomes a repair and ... might get the attention of the ATO.”

“Painting is clearly a repair,” he said. “But say you don’t have an air conditioner, and you install one, that’s clearly an improvement, but a lot of people claim that as a repair.”

If taxpayers were replacing an existing air conditioner with a new one, that would be considered a repair, but only the depreciation of the air conditioner could be deducted.

“With higher interest rates, quite a lot of rental properties will go into negative gearing — that is, the expenses ... will be higher than the rental income they are receiving, so we expect to see more people losing money on their rental property this year,” Ord said.