More than 3.8 million people have lodged their tax returns during the first 6 weeks of the 2018 tax season.[i]
Although lodging through myGov has made preparing your tax return easier, the ATO have found that a significant number of returns contain errors, from omitting income to claiming deductions incorrectly. So, we thought we would devote this month’s blog to common mistakes that are being made on the individual tax return.
Leaving out some income
The ATO have tried to alleviate the risk of forgetting to include income by offering pre-filling. However, the pre-fill system is constantly being updated with new data (e.g. some interest and dividend data is not available until early to mid-August), which means that if you lodge too early, you run the risk of omitting income. So, before lodging your tax return, check the details are accurate and add any missing information. This will help to avoid the ATO amending your assessment in a few months’ time and leaving you with a possible tax bill.
2. Claiming deductions for personal expenses
A lot of people think they can claim the cost of purchasing and laundering their everyday clothing, like work suits. But unless it is protective clothing or has a company logo, then unfortunately, there is no deduction available.
3. Claiming something that they never paid for
There are no automatic or standard tax deductions available to taxpayers. Although there are some exemptions for receipts where you are claiming under $300 in work related deductions, you still need to be able to prove how you worked out your claim if the ATO asks, even though you don’t need to supply the physical receipt. Assistant Commissioner Kath Anderson has said “People think they have an entitlement even though they have not spent the money. You must have spent the money yourself and not have been reimbursed, it must be directly related to earning your income, and you must have a record to prove it.”
4. Claiming substantially more in deductions than others in your profession
The ATO benchmarks your return to the other returns of the same profession. So, if you are claiming more than your peers, the ATO might want to take a closer look. This doesn’t mean that you shouldn’t claim everything you are entitled too, but if you have significant tax deductions, ensure that you have receipts and workings on how you came up with the deduction and how it relates to your income.
5. Claiming deductions for personal expenses for rental properties
This is mainly the case for holiday rentals. For example, there may be periods during the year where you stay in the property or allow friends or relatives to stay in the property for free. If you are renting out your rental property at no-charge, you are unable to claim a tax deduction for the expenses related to the property during that period, and you will need to apportion your deductions over the time that the property was rented and not used for private purposes.
A great way to keep yourself out of trouble is to keep good, clear records and if you do realise that you have made a mistake, don’t panic, get in touch with the ATO or your tax agent as soon as possible so that an amendment can be made.
If you have any questions, need any advice or are unsure about your tax return, don’t hesitate to contact us. Sometimes it’s good to have a second pair of eyes looking at your financial affairs to make sure that you are claiming as much as you can whilst not overstepping the line.
General Advice Warning – The information in this article is educational and general in nature. It does not take into consideration your personal financial or taxation information, goals and objectives. Please ensure you seek appropriate financial and taxation advice.
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[i]Data taken from ATO Media Release from 9 August 2018