It’s almost tax time, and if you’re anything like us you’re already planning what you’re going to do with your refund. While it’s tempting to claim as much as possible to bump up your return, it’s not smart to be blase with your claims – there are some hefty fines which are applicable if you get caught faking it – and with the technology the ATO now uses, it’s highly likely you’ll be called out on your phony claims.
This year more than 84% of Australian taxpayers are anticipating to get a refund and with the average refund being just over $2,300 – it’s important to understand the ins and outs of what you are entitled to so you don’t run into any trouble down the track.
It’s also important to be pro-active about tax instead of reactive – once June 30 has come and gone, you need to wait another 12 months before you can claim an expense on tax. So if you’re looking at purchasing something for your business, now is the time so you can claim it as soon as possible.
First things first, don’t forget the basics.
Many times, getting your refund back to you gets held up because taxpayers are making basic mistakes like these:
- If your name or address has changed, make sure you update your ATO info before lodging your return. If you’re lodging a return under different details the ATO’s data matching technology won’t be able to match it to your Tax File Number.
- Making sure your bank details are correct. All tax refunds are now done via direct deposit - gone are the days of receiving your return as a cheque in the mail. Ensure your bank details are provided on your return and are correct.
- Didn’t use spell check? If you’ve added an extra letter, or accidentally spelt something wrong in a key field, it’ll delay your return significantly as the ATO will have to manually match your details – and as you can imagine, this happens a lot so the delays are substantial!
- Make sure you claim ALL your income – including those three Uber shifts you did last October, or that casual shift you do at a cafe on the weekends in addition to your full time job. Not claiming income is something the ATO has been cracking down hard on, especially recently with the rise of the Gig Economy (Uber, Airbnb, Social Media Influencers, etc)
Don't claim it if you haven’t spent it.
You can only claim on the things you’ve spent. If you’re audited, you’ll need to provide proof of what you’ve spent – so don’t embellish the deductions you’re claiming in order to get a bigger refund.
It’s a common misconception that you can claim up to $300 without receipts, however you actually have to have spent the money. If the ATO audit you, you’ve got to be able to produce proof of your claim.
People lodging their own tax returns using the ATO’s myTax software are monitored by the ATO’s software as they prepare their returns, to make sure that people aren’t over claiming.
The software compares your claims to people who are similar to you and if your claim is anything out of the ordinary parameters, myTax will give you a flashy warning prompting you to reconsider that claim. If you ignore their advice, you could be in for a pretty serious audit.
If you’re found to have claimed something that you weren’t entitled to it doesn’t just mean you have to re-pay what you claimed back, you’ll be paying interest of about 9% per annum. On top of that, if the ATO believes you have acted carelessly, you’ll be slapped with a penalty between 25% and 95% of the tax avoided – it’s not worth it!
DON’T rely on the pre-filled data on myTax.
When you log into the ATO’s myTax system, often a lot of your personal and financial information will be pre-filled – it’s important to ensure you are checking all information the ATO have, and not assuming that because they are the ATO that the information they have is correct. Always make sure you’re using your own group certificates, payment summaries and bank statements as the main source of information.
Unfortunately, if you get questioned on your tax return the legal responsibility lies with you, not with the ATO – even if the information was pre-filled by them.
Make sure you’re matching your claims to your lifestyle.
If you’re living the dream, splashing your income on bottles of Mumm every weekend and buying Louboutin’s while claiming you’re only earning minimum wage, the ATO is going to look at you twice.
Their data matching technology will send off some red flags for your return to be reviewed. The ATO will assess the assets you own and calculate the amount of income you would require to support that lifestyle – and if they don’t think you’re being honest about your income, you could be in some serious trouble.
P.s. the ATO has access to your public social media profiles and will have a look at your Instagram feed if they’re feeling suspicious about what you’re claiming – and will use any images they find of you living the dream to support their assumption that you’re not being honest about what you’ve earned.
Make sure you’re claiming everything you are entitled to.
You’re entitled to claim deductions for any expenses you incur while earning your income. So if you have had to pay for something related to your job – claim it, but only if you have the paperwork to prove it. Here are some surprising things you’re able to claim on:
- Your handbag! As long as its main use is as a work bag, to carry your laptop, notebooks and anything else you need for work. Sadly this bag has to be practical and ‘reasonable’ in nature, so you’ll have to save up your tax returns for that navy Chanel Boy bag with the silver hardware…sorry!
- Shoes! Work boots are an obvious deduction, however flight attendants are allowed to claim a second pair of shoes that are the same as their uniform but more comfortable. Those Jimmy Choo’s don’t count, even if you’re wearing them to work (it makes us sad too, don't worry!)
- Makeup! As long as it contains SPF and you work outdoors. If you’re able to provide proof that it’s required in your job though, you might also be able to claim that on tax too!
- Donations made to charity, starting at $2.
- The interest you earn from an investment income!
- Mobile phone – if you’re using your personal phone to make calls and check emails for work you can claim the cost of your work calls – not the whole bill.
- Laundry – to wash your work uniform.
- Education – If you’re studying subjects related to your current paid employer, it’s tax deductible after the first $250. You can also claim travel expenses for the cost of getting to and from the place of your education.
- Union/Membership fees.
- Sex toys – if you work in the adult entertainment industry the ATO have a special guide about what can be claimed by adult industry workers. The list includes things like dance lessons, hair care, oils, tissues, lingerie and costumes.
- Rental property expenses – including bank fees, gardening and lawn mowing, pest control, repairs, security, bookkeeping fees and travel and car expenses for rent collection, inspections of property and maintenance.
- Garden gnomes – This deserved its own dot point, landlords are able to claim on the cost of gnomes and property related expenses such as heated towel rails, clocks and fish tanks (BMT Tax Depreciation CEO Bradley Beer).
- Dogs! Claiming a tax deduction for dogs is allowed for people who use their dogs for work - mainly people in security services and farming.
- Income protection insurance – you’re entitled to a tax deduction for insurance premiums paid against the loss of income – however this isn’t applicable for life insurance, or Total and Permanent Disability insurance.
- Your home internet – if you’re working from home, and the connection is in your name you can likely claim part of your internet expenses as a deduction.
- Car expenses – if you’re using your car for work (you can’t claim your trip to and from work though!)
- Financial planning advice and accountant fees!
- Subscriptions to work-related magazines and journals (if you work in media this means you can claim your Vogue Subscription!
Are you working from home?
If you’re working from home you can claim a number of different things, these include:
- Heating, aircon and lighting bills – for all the time you’re using your home office.
- Depreciation of home office assets – you’ve decked your home office out with a nice desk and comfy chair, so you might be able to claim the write off.
- Depreciation of your laptop or other office equipment – you may be able to claim a write off for the decline in value.
If you’re confused about what you can and can’t claim on, a good tax accountant (like the team at Zella!) will be able to tell you what you can and can’t claim, minimising the chance of you being audited later.
Keep track of your spending throughout the year.
When it comes to tax time it’s often hard to remember what you’ve spent. We find that one of the easiest ways for people to keep track of their spending is to have an album on their phones in which they keep photos of receipts and invoices – then at tax time, everything is in one place – gone are the days of a shoebox filled with fading receipts!
Keep a budget, even if you don’t stick to it. A budget helps you to be aware of your spending and income so you don’t get a rude shock at tax time when you see the cold hard numbers of what you’ve earned are in front of you and you’re left wondering where it all went.
Talk to the professionals.
There’s a reason more than 75% of Australians use a tax agent, and that’s because tax is not that simple. If you don’t know exactly what you can claim, you might be missing out on some sweet returns, and if you get your return wrong, you could be in for some pretty hefty fines – so it pays to talk to someone who knows what they’re talking about when it comes to tax!
The only way to get definitive tax return advice is from a registered professional. An experienced accountant will be able to highlight to you what you can claim on, what you can’t – and what you can be doing in the next financial year to ensure you’re maximising the amount you can claim back in the future.
A good accountant is an investment worth making, and you’ll often find that they’ll highlight things you didn’t know you could claim – the best part is, that seeing an accountant is a tax-deductible cost too!
If you'd like some help getting on top of tax this year get in touch with one of our friendly Zella team members and have a chat.