These days, your tax return is almost like an honesty test. From Centrelink payments to health insurance, child support to bank interest, the ATO sees all and seemingly knows all.
This is because of the amount of information that is provided to them through data-matching platforms, new technologies and greater access granted each year.
One thing they don’t have access to though is your tax deductions.
It’s important to lodge an accurate tax return so you can avoid getting into hot water with the ATO. Exaggerated or “guesstimated” expense claims, or a lack of receipts and evidence, will often be flagged for investigation at the ATO. Avoid these common mistakes involving your tax return, and you’ll be far less likely to raise a red flag with the ATO.
1 – Do NOT Guess Or Estimate Your Income & Tax Paid
On your tax return, ensure you use accurate figures when you enter your income and the amount of tax you’ve paid.
The ATO has records of this, and they compare what you submit against the information they already have. They might not have records of some types of income like consulting or solo work, but they can see your accounts.
All of your entries must be correct and complete as out of-place money can attract the ATO’s attention.
2 – Do NOT Guess Or Estimate Your Tax Deductions
Deductions are something only you can keep track of. Don’t be “creative” with tax deductions, as the ATO analyses every item you claim. They then compare your deductions against others in your line of work, location, industry, age group, and their own benchmarks.
If your deductions look too high for the ATO, watch out!
It’s also best to have a receipt sorted for these deductions as the ATO has a knack for asking about them.
• Save receipts into a folder on your computer, a shoebox, or on your phone – and save the receipts right when you make a purchase so you don’t have to hunt for them later.
• Enter the exact amounts from your receipts into your tax return.
• Tax agents know what the ATO is looking at and know exactly what is allowed in your deductions. Consult about your return with them if you have doubts.
3 – Do NOT Fail To Declare Overseas Income
If you are an Australian resident for tax purposes (which is more complicated than just being here), you should still lodge an annual tax return in Australia even if you live and work overseas at the moment. You need to declare all your foreign employment income AND any other income you receive from that country.
Foreign income includes:
• pensions and annuities
• employment income
• investment income
• business income
• capital gains on overseas assets
4 – Do NOT Overclaim Expenses For A Rental Property Or Holiday Rental Property
There are strict rules applied to when you can and cannot claim tax deductions for the property-related expenses over the year – not all expenses can be claimed!
5 – Do NOT Fail To Have Proof Of Purchase For Deductions
Paying money for work-related items and keeping no receipt is a costly mistake that many people make.
Basically, without receipts for your expenses, you can only claim up to a maximum of $300 worth of work related expenses. But even then, it’s not just a “free” tax deduction. The ATO doesn’t like that. It has to be real expenses.
Remember: If you over-claim your deductions and get a bigger tax refund than you’re entitled to, the ATO can ask you to repay some or all of your refund – plus interest charges and other possible penalties as well. That also goes for claiming significant deductions that you can’t prove.
Need Professional Help? Our tax accountants can submit your tax.