1. Claiming more than you're entitled to
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.
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 but consider claiming these:
- Working from home expenses. If you’ve been working from home due to COVID-19, you should claim the work-related costs of your home running costs, like gas, electricity, mobile phone, internet and so on. There are now three methods for claiming; your tax accountant will be able to help you find the best one
- Clothing and uniforms. You can claim the cost of buying and cleaning occupation-specific clothing such as work uniforms.
- COVID-19 protective equipment, including hand sanitiser, antibacterial soap and face masks
- Have you thought about claiming your hand bag? 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.
2. Embellishing deductions
You can only claim what you’ve spent. So, don’t inflate deductions in order to get a bigger refund and only claim for costs you can prove you spent, by producing an invoice, receipt or bank statement for instance.
Self-lodgers using the ATO’s myTax program are monitored as they prepare their return by the ATO’s computer systems to ensure they’re not over-claiming. The ATO’s computer systems compare your claims to those of others like you and if your claim rings 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!
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.
3. Relying on pre-filled data from the ATO
These days, with the push of a button, you can pre-fill lots of your income information straight from the ATO’s systems. Take care though and don’t assume that income data is correct or complete. Particularly if you are lodging early, 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.
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.
4. Forgetting the basics
Lots of tax returns get held up by the ATO because taxpayers have made basic mistakes like these:
- Name or address changed? Tell the ATO before you lodge your return. If you lodge under different details, the ATO won’t be able to match it with your Tax File Number. Delays will ensue!
- Not included your bank account details? The ATO doesn’t send out refund cheques these days so you need to include your bank details on your return. No bank details, no refund!
- Spelling mistake? If you’ve added an extra letter to a key field such as your name, that slip of the keyboard could consign your return to a black-hole whilst the ATO tries to manually match your details.
5. Not seeking help
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.
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. 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. Best of all, the tax agent’s fee is also tax deductible!