APPROXIMATELY 12-million Australians submit a tax return every year.
Many of them, particularly those hoping for a tax refund, do this following the end of the financial year during the months of July and August.
H&R Block director of tax communications Mark Chapman said it was essential to ensure you get your tax return right.
“Get it wrong and you could lose out on valuable deductions, reducing the size of the refund you’re entitled to,” he said.
“Worse, if you omit or understate your income or claim a deduction you’re not entitled to, you could end up being audited by the Australian Taxation Office (ATO), paying extra tax plus penalties of up to 95 per cent of the underpaid tax.”
Listed below are H&R Block’s top five tips to ensure you get your tax return right.
- Don’t rely on pre-filled data from the ATO
With the push of a button on your computer you can download a host of information about your income straight from the ATO.
These days, many third parties such as employers, banks and other financial institutions report the payments they’ve made to you straight to the ATO. This gives the ATO the ability to pre-fill your tax return with all the information they’ve received from the third parties.
However, pre-filled information is only as good as the data submitted to the taxman.
During July, in particular, many taxpayers are shocked to notice that plenty of their income information doesn’t show up when they download data from the ATO. This is because many third parties don’t pass on the data they are legally required to provide until well into July and, in come cases, August.
So, don’t assume the income figures downloaded from the ATO are correct. Always take you own information (for example, payment summaries) 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.
If you omit income and get questioned by the ATO, the legal burden will be on you even though you’ve taken the information straight from the ATO’s pre-filled data.
- Don’t embellish deductions
You’re entitled to claim a deduction for any expense that you incurred in earning your income. The key word is incurred – you must have actually spent the money.
So, don’t inflate deductions in order to get a bigger refund and only claim for costs you can prove you incurred by producing an invoice, receipt or bank statement for insurance.
For the first time this year, self-lodgers using the ATO’s myTax system will be monitored in real time by the ATO’s systems to ensure you’re not over-claiming.
The ATO’s system will compare your claims to those of others of a similar background (such as occupation or neighbourhood) and if your claims trigger a risk flag as being excessive, myTax will give you a warning message before you lodge your return.
- Do claim what you are entitled to
You are entitled to claim a deduction for any expense that you incurred in earning your income. So, if you actually have incurred a work-related expense and you have the substantiation to prove it, don’t hesitate to claim it.
Common deductions many taxpayers can claim include:
Costs for using your own car for work.
This doesn’t include driving to and from work, but it does include visiting clients or suppliers and driving from one work-site to another.
Costs of travelling for work.
If you are required to work away from home and you incur costs on meals and accommodation, those costs are deductable up to the amount you actually spent. If your employer pays you an allowance to cover your travelling costs, that allowance is taxable.
Costs of tools and other equipment.
Provided it’s for work purposes, if you spend it, you can claim it. This includes the costs of tools if you’re a tradie or the cost of a new computer, laptop or mobile phone if you’re office based.
If it’s used partly for work and partly for private use, you can only claim the work-related portion.
Items costing $300 or less are deductable in full, immediately. Items costing more than $300 are deductable over several years.
A good tax accountant will be able to tell you exactly what you can and can’t claim, minimising the chances of an audit at a later date.
- Plan for next year
When you’re busy trying to get this year’s tax return right, it might seem a little premature to think about getting next year’s return correct. But the secret to making tax time easy is to plan ahead.
If you end the financial year with all your receipts, invoices and other records tidily arranged, you’d immediately be ahead of the game.
So, as we start the new tax year, here are some things to keep in mind:
If you spend money on anything as part of your job, get and keep the receipt. Even if you’re not sure if its deductable, if you at least have the paperwork, you can get your accountant to advise you when the time comes to do your return.
Rather than keeping paper copies of everything, take photographs of receipts and store them on your phone. There are apps (such as the H&R Block tax app or the ATO’s myDeductions app) that enable you to store all your records in one electronic place. The ATO accepts electronic copies, so you don’t need to keep paper versions, which often fade away.
- Get help
There’s a reason 74 per cent of Australians use a tax agent to prepare their tax return – tax is complicated. Get your tax wrong and the comeback is on you, either with a lower refund or ATO penalties.
If you previously lodged using the ATO’s e-tax system, you might be disappointed to learn that e-tax has been retired. You must now either engage an agent or learn how to use to newer myTax system.
Given that e-tax users tended to have more complex tax affairs, many will switch to using an agent.
Most people find it 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.
An experienced agent will usually be good at sniffing out those obscure tax deductions you didn’t know you could claim, so they can often pay for themselves several times over.
For more information, visit www.hrblock.com.au.