Tax season is always a mixed bag of emotions: joy at the thought of a possible return from the Australian Taxation Office (ATO) and dread at the thought of having to fork out extra cash to the tax man, especially in a cost of living crisis.
Mark Chapman, the Director of Tax Communications at tax accountant firm H&R Block, said it’s a good idea to avoid rushing your return this year because it’s easy to make a mistake, and there is little benefit to rushing.
“The best time to submit a tax return is from mid July. The ATO doesn’t actually process any refunds until then anyway. There is limited advantage to be gained in lodging early,” he said.
“In addition, the ATO only receives pre-fill data, for example, from your employers, the banks and health funds, from the second half of July onwards. If you intend to rely on this pre-fill data, there is a danger in lodging early because not all of the information will be present.”
Top tax tips for your return this year
Billionaire media mogul Kerry Packer once told a Parliamentary committee he was absolutely trying to minimise the amount of tax he was paying because, in his view, the government wastes taxpayer dollars, and he had little interest in giving them any extra cash to burn through.
Mark has some more practical advice this tax season. Double check all your paperwork, especially if you want to claim for work related expenses, which the ATO has flagged as something they will be watching closely.
He has three golden rules to avoid the ire of the tax man. The expense must relate to your work; you can’t have been reimbursed, proof of spending the money, such as receipts, invoices or statements are required as well,
“My tip is to keep electronic copies of all documentation relating to expenses. Paper receipts get lost or fade, so keeping everything together on your phone or computer will save time and effort when you come to complete your tax return,” Mark said.
“Take some time out to gather together all the information you will need to help you prepare your tax returns, including invoices and receipts for work related expenses and any bank statements that contain items of work related expenses.”
Make sure you claim working from home though
At the same time, Mark says don’t be scared to claim expenses incurred from working at home, such as heating, cooling, lighting, cleaning and the decline in value of home office furniture and other work items through extended use.
Computer consumables, stationery, telephone and internet costs, items of capital equipment, furniture, computers and associated hardware and software that cost less than $300 can be written off in full immediately.
“You can’t claim things like tea, coffee, and toilet paper, which would be provided if you work in an office, but are actually private expenses when bought for home,” Mark said.
“You can claim actual costs, but you’ll need copies of all invoices plus a reasonable estimate of the percentage split between work use and private use. Alternatively, use the ATO fixed rate of 67 cents per hour.
“Don’t forget, to claim the fixed rate, you must be able to prove the number of hours that you worked from home during the entire tax year, so you’ll need a diary, copies of timesheets or rosters,” he added.
Don’t rely on pre filled data from the ATO, and remember the basics
These days, you can pre-fill information straight from the ATO’s systems with the push of a button.
While this can be time saving, Mark says it’s not always accurate and can lead to other issues.
If you omit income and the ATO questions it, you will be held legally responsible, even though you’ve taken the information straight from the ATO’s pre-filled data.
“Always use your own information as the key source data. Some people assume that because the data comes from the ATO, it must be right. That’s a dangerous assumption, especially in July and early August,” Mark said.
“Lots of tax returns get held up by the ATO because taxpayers have made basic mistakes like not notifying them of a name or address change. If you lodge under different details, the ATO won’t be able to match it with your Tax File Number. Delays will ensue.”
At the same time, Mark says to remember the basics, like including your bank details on the return, and spelling. Without bank deals, you can’t get a refund.
While spelling mistakes could “consign your return to a black hole whilst the ATO tries to manually match your details.”
Get help from an expert
Claiming online yourself can be tempting, but Mark thinks it can be beneficial to see an accountant, especially if your return is complicated with multiple earnings.
He says an experienced agent will usually be good at sniffing out obscure tax deductions you can claim as well. Best of all, the tax agent’s fee is also tax deductible.
“There’s a reason 74% of Australians use a tax agent to prepare their tax return; tax is complicated. Get your tax return wrong and the comeback is on you, either with a lower refund or ATO penalties,” Mark said.
“Most people find it far less stressful to simply pass on all their information to a tax agent and leave it to the agent to complete their return, safe in the knowledge that the return will be accurate and complete.”
Tax warnings to keep in mind
The ATO is not known for its good nature and humour. If you are caught trying to fudge the lines a bit on your return, expect the retribution to be swift and harsh.
For that reason, Mark says, tread carefully. Claim what you’re entitled to but don’t embellish deductions.
“You’re entitled to claim a deduction for any expense which you incurred in earning your income. So, if you have incurred a work-related expense, and you have the paperwork to prove it, don’t hesitate to claim it,” he said.
“Have you thought about claiming your handbag? If you use it for work-related purposes, such as carrying documents and files, you can score a tax deduction for the work-related proportion of the cost.”
You can also claim the cost of buying and cleaning occupation-specific clothing such as work uniforms and possibly COVID-19 protective equipment, including hand sanitiser, antibacterial soap and face masks.
However, Mark says you “can only claim what you’ve spent,” so don’t claim anything you can’t back up with an invoice, receipt or bank statement.
Self logders should also be careful because the ATO’s myTax program is monitored to ensure nobody is overclaiming.
According to Mark, the ATO’s computer systems compare your claims to those of others in your profession, and if your return sounds alarm bells, myTax will give you a stern warning, inviting you to rethink that deduction.
“Ignore that message, and you could be headed for an audit,” he said.
“If your deduction claims are found to be incorrect, you will be required to repay the tax avoided, plus pay interest. If the ATO believes that you have acted carelessly, a penalty between 25% and 95% of the tax avoided may also be charged.”
Capital gains can be a menace
A capital gain is the profit earned on the sale of an asset that has increased in value over the holding period.
Mark says many people aren’t aware of their potential capital gains exposure if they have disposed of investments, such as properties, Cryptocurrency, stocks, and shares.
“As the ATO is cracking down on undisclosed capital gains, and as the ATO is receiving plenty of data from third parties which they can use to cross-check your return, it is worthwhile making sure that you have correctly included all capital gains,” he said.
“Similarly, many people forget or aren’t aware that they need to include their sharing economy income. So, if you received income from Uber, Airtasker, Airbnb, or any of the other sharing economy platforms, don’t forget that this needs to be included.”
Other things to keep in mind
Tax time can be very complicated. It’s worth knowing that tax returns are due by October 31 if you’re doing it yourself. While those going through a tax agent can get an extended return deadline.
You can lodge your tax return after this date, but the ATO may fine you about $330. A further $330 is charged every 28 days it’s overdue.
Expect your return to be paid within 12 business days if it’s electronically lodged. A paper tax return can take up to 50 days to process. If you find yourself owing the ATO money, it has to be paid in full by Nov. 21.
Scammers are also out in force, impersonating ATO employees and creating fake websites to steal your details. Always double check everything, and never click on links sent from people you don’t know.
This article is meant as general information only; it’s always best to seek tax advice from a professional who can help make the best decisions for your situation.
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