Tax time essentials
A hefty tax refund is a good incentive to ensure you are diligent at tax time and it’s understandable that you may believe it’s more cost-effective to DIY your tax return.
New tax thresholds were introduced on 1 July 2020 with a new low- and middle-income tax offset, so the key is to take time to completely understand your position and situation to ensure you maximise your return.
While the Australian Tax Office (ATO) wants you to claim all entitlements, it is increasingly clamping down on erroneous or unjustified claims so it pays to stay up-to-date on current regulations. If you are overpaid, the ATO can claim the money back and you may be asked to pay interest and/or a penalty if you are found to have made an illegal claim.
According to ATO audits and reviews, there are five common areas where taxpayers can go wrong.
1. Leaving out sources of income (interest paid on an account or investment, a temporary job, money earned elsewhere etc)
2. Claiming deductions for personal expenses such as home-to-work travel, normal clothes or personal phone calls
3. Claiming for something never paid for (a common misbelief is that everyone is entitled to a ‘standard deduction’, such as $150 for laundry or $50 for phone – this isn’t true)
4. Claiming personal expenses associated with rental properties (either claiming deductions for times when they used the property themselves) or claiming interest on loans used to buy personal assets such as a car or boat
5. Not keeping receipts or records of expenses. If you put in a claim, you need a record to prove it
In a nutshell, claims must always be directly related to the income earned and cannot be of a private nature. In addition, you must be able to demonstrate how you calculated the amount claimed. While there are some extenuating circumstances that allow a small portion of taxpayers to claim items such as gym memberships or makeup (for example), for most there is no direct link between these expenses and earning their income.
A great resource for keeping up with new rules and understanding their application is the ATO series of podcasts “Tax inVoice”. Head here for a full list of episodes – https://www.ato.gov.au/Media-centre/Video-and-audio-files/ATO-podcast—Tax-inVoice/
Sometimes people like to seek the advice of a trusted friend or family member rather than an experienced tax adviser as they are more cautious of sounding ill-informed or uneducated. While friends and family can be useful in helping to navigate a number of areas, tax is generally one area where misinformation spreads quickly and it’s easy to misinterpret information or be given out-of-date advice. And, if you make a mistake, the only person liable is yourself.
A licenced tax agent provides reassurance and expert advice, and the cost of the services they provide are generally fully tax deductible. “Helping our clients understand their accounts and taxes, and completing them right and on time is what drives me” says Lisa Harris, Senior Accountant at Alteris Financial Group.
Data released by the Australian Bureau of Statistics indicates many more Australians are working from home, either full-time or part-time, since the COVID-19 pandemic and that will change the landscape of tax returns significantly, potentially making it more complicated and less straightforward to complete your return. For example, costs to set up a home office or workstation are tax deductible but you will have needed to pay for these personally and keep your receipts/order forms with details of the supplier and when the purchase was made. Bank or credit card statements often won’t contain enough information for the claim to be valid without the original receipts.
We recommend simplifying how and where you keep your tax records so you can be better organised at tax time. Either open a new folder on your computer or create a physical file in your home office and label with the current financial year. It’s really as simple as that and you don’t need a complex filing system. There are also plenty of free apps available for your phone that help capture and save receipts.
Whether you lodge your own tax return or use a tax agent, ultimately you are responsible for making sure your deductions are accurate and adequately supported by documentation.
So, this tax time, make it a priority to be informed and get expert advice from those in the know about all things tax.
Lisa Harris, Senior Accountant
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