The ATO are cracking down on shady expenses and deductions. Here's how to remain in the clear.
Over the coming moths, 13 million Aussies will lodge a tax claim. With over 80 per cent expected to get a return, it pays to familiarise yourself with what you can claim and how to avoid the common tax mistakes to help get that return exactly right.
H&R Block's Director of Tax Communications, Mark Chapman shares his intel on how you should prepare for your tax lodgement this year.
Claim what you're entitled to
You’re entitled to claim a deduction for any expense which you incurred while 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," says Mark.
Amongst the common deductions many taxpayers claim are:
- Costs of 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 deductible up to the amount you actually spent. If your employer pays you an allowance to cover your traveling costs, that allowance is taxable
Costs of tools and other equipment. Whether it’s the cost of tools if you are a tradie, or the cost of a new computer, laptop or mobile phone if you are office-based, if you spend it, you can claim it, provided it’s used for work purposes (if it’s used partly for work and partly for private use, you can only claim the work-related proportion). Items costing $300 or less are deducible in full, immediately. Items costing more than $300 are deductible over several years.
Mark says that a good tax accountant will be able to tell you exactly what you can and can’t claim, minimising the chances of being audited later down the track.
Keep it straightforward
You can only claim what you’ve spent, so by inflating the cost of things to boost your deductions is never a good idea. Mark says you have the best chance of claiming deductions when you have documents (invoices, receipts or bank statements) to prove your expenditure.
"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," says Mark. "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!"
What happens if you get caught?
"If your deduction claims are found to be incorrect, you will be required to repay the tax avoided, plus pay interest of about 9 per cent per annum. If the ATO believes that you have acted carelessly, a penalty between 25 per cent and 95 per cent of the tax avoided may also be charged," warns Mark.
Similarly, if you submit incomplete information or income and get questioned, the buck stops with you.
Common mistakes and how to avoid them:
- Double-check your details: Changed your name, bank account, address or made a spelling mistake? This can lead to a manual lodgement which can potentially delay a return!
- Charity donations: You can only make tax deductible donations to organisations that have the status of deductible gift recipients. You must keep the receipt (in your name) if the donation is more than $2. Raffle tickets don't count as they're considered not truly a gift.
- Home office expenses: It's a myth that you can claim a percentage of your rent or mortgage if you work from home. You can, however, claim heating, electricity and depreciable costs of furniture.