With tax season just a couple of weeks away, now is the time to think about preparing your annual tax return. From July 1, 13 million Australians will be able to file a return.
Since 84 percent of them expect a refund and the average refund amount is over $3,000, it’s worth spending a little time and effort making sure all the details of your return are correct. Also, make sure you’ve avoided some of the most common traps that people tend to fall into.
So what are my top tips for making a good return this year?
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1. Claim what is yours…
You have the right to claim a deduction for any expenses you incurred to earn your income. So, if you have incurred a work-related expense and you have the documents to prove it, do not hesitate to claim it.
A good tax accountant will be able to tell you exactly what you can and cannot claim, minimizing the chances of an audit at a later date, but consider claiming the following:
Work related clothing
If you must wear a uniform as part of your role, the cost is deductible. Then there is clothing specific to each occupation; clothes that are not for daily use but that would allow the public to easily recognize you as a nurse: all are deductible.
You can also claim a deduction for the cost of clothing you wear at work to protect your normal clothing from dirt or damage, for example, overalls.
You can also claim the cost of laundering and dry cleaning your eligible work clothing, such as the required uniform.
Protective equipment
You can claim a deduction for protective items such as gloves, masks, sanitizer, and antibacterial spray.
In relation to COVID-19 testing, these will be deductible when performed for work-related purposes, for example where there is a mandatory requirement under your employer’s COVID-19 policy.
COVID tests performed for private purposes (e.g., personal travel, convenience) are not tax deductible.
Self-education
Claim for conferences and other training expenses. In addition to the cost of the conference or course itself, that may also include travel, meal and accommodation costs, even when the conference or course is held abroad, although you may need to prorate the costs (and not allow private part) if you spent some free time on the beach afterwards!
Professional subscriptions
Claiming professional affiliations, whether to a professional association or a union. The costs of renewing any annual certificate of practice are deductible, as are the costs of magazines, newspapers and magazines that have content considered aligned with your work or trade.
Travel and food
Generally, the cost of daily travel to and from work cannot be claimed. The only exception to that rule is if you have to transport bulky equipment to and from work because there is no safe place to store it at your workplace.
You can claim the cost of traveling between two places of work. This includes public transportation and taxi costs.
If you plan to use your own car for work purposes, you can claim a flat rate of 85p per kilometer for all work trips or you can claim actual expenses incurred. If you choose the latter, you will need to keep receipts for all costs (including tolls and parking fees) and also keep a log book of all your trips over a 12-week period.
If you must work overtime, you can claim the cost of buying meals as long as your employer has paid you an allowance.
Working from home
If you spend time working from home, you can claim a proportion of your home running costs, either based on actual costs (in which case you’ll need receipts) or a standard rate of 67 cents per hour. The 67 cent fee covers:
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internet or home and mobile data expenses
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Mobile and residential telephone usage expenses.
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Electricity and gas (energy costs) for heating, cooling and lighting.
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Stationery and computer consumables, such as ink and printer paper.
Therefore, be careful not to “double up” and claim separately for mobile phone costs (even if you are using your mobile phone away from home, for example while travelling).
Likewise, the 67 cent rate does not include:
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depreciation of technology and office furniture such as chairs, desks, computers, shelves.
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repairs and maintenance of these elements.
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Office cleaning costs.
So be sure to include separate claims for these items!
Tools and equipment
You can claim a deduction for items of fixtures, machinery and tools you have purchased. If the cost is less than $300, a deduction can be claimed immediately; Otherwise, a deduction can be claimed over the “effective life” of the assets.
Agency costs
If you source your work through an agency, the cost is claimable.
2. But don’t embellish the deductions…
You can only claim what you have spent. Therefore, don’t inflate deductions to get a larger refund and only claim costs you can prove you spent, by presenting an invoice, receipt or bank statement, for example.
Tenants using the ATO’s myTax program are monitored while they prepare their return through the ATO’s computer systems to ensure they are not overclaiming. The ATO’s computer systems compare your claims to those of other people like you and if your claim raises alarm bells, myTax will give you a stern warning inviting you to reconsider that deduction. Ignore that message and you could go to an audit!
If your deduction claims are found to be incorrect, you will be required to repay the avoided tax, plus interest payments. If the ATO believes you have acted carelessly, you may also be charged a penalty of between 25 and 95 per cent of the tax avoided.
3. Don’t trust pre-populated data from the ATO
Today, with the push of a button, you can pre-populate a lot of information about your income directly from the ATO’s systems. However, be careful and do not assume that the income data is correct or complete. Especially if you host early, always use your own information as a key data source.
Some people assume that because the data comes from the ATO, it must be correct. This is a dangerous assumption, especially in July and early August.
If you omit income and are questioned by the ATO, the legal burden will fall on you, even if you took the information directly from the ATO’s pre-populated data.
4. Don’t forget the basics!
The ATO delays many tax returns because taxpayers have made basic errors such as these:
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Has the name or address changed? Inform the ATO before filing your return. If you submit different data, the ATO will not be able to compare it with your tax file number. Delays will occur!
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Don’t include your bank account details? The ATO does not send refund checks these days, so you should include your banking details on your return. No bank details, no refund!
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Spelling error? If you’ve added an extra letter to a key field like your name, that keyboard error could send your return into a black hole while the ATO tries to match your data manually.
5. Get help!
There’s a reason why 70 per cent of Australians use a tax agent to prepare their tax return; Taxes are complicated! If you make a mistake on your tax return, the recovery will be yours, whether it’s a lower refund or fines from the ATO.
Most people find it much less stressful to simply pass all of their information to a tax agent and let the agent complete their return, safe in the knowledge that the return will be accurate and complete.
An experienced agent will usually be good at spotting those obscure tax deductions you didn’t know you could claim, so they can often pay for themselves several times over. Best of all, the tax agent fees are tax deductible too!
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