- There’s an $8.7 billion difference between what people owe in tax and what they actually pay, according to estimates, with the ATO getting better each year at deducing which claims are legitimate or not.
- Depending on your profession, you can claim all kinds of things from sex toys to handbags and gym memberships but you need to be sure that you’re eligible.
- As long as you hang on to your receipts, do your research and carefully fill out your return, you should avoid the most common mistakes, according to the experts.
The end of the financial year means different things to different people.
If you’re working in any kind of administrative or financial job, the weeks leading up to 30 June are the busiest of the year.
If not, you’re probably just looking to pick up a bargain as stores try and clear their shelves — although be warned, bargain hunters are hurting the economy.
But there’s a good reason to pay attention because if you fill in your tax return right, you could be thousands of dollars better off. If you fill it in wrong, however, you could land yourself in hot water.
As we hurtle towards the new financial year, here’s what you need to know.
1. Hang on to your proof
Every year the Australian Tax Office (ATO) makes it clear what and who it has in its cross-sights and this year is no different.
It estimates that there’s an astounding $8.7 billion difference between what the taxman is entitled to take from individuals, and what is actually paid.
Of that amount, just one mistake (accidental or otherwise) makes up the majority, according to the ATO: incorrectly claimed work-related expenses.
“Common mistakes include claiming deductions where there is no connection to income, claims for private expenses, or no records to show that an expense was incurred,” the ATO flagged this year in a media statement.
That means that come tax time, it will be the area undergoing some serious scrutiny.
“If you’re claiming something, you need to have a receipt. Go through all your receipts, both physical and electronic, and check what you can and can’t claim,” H&R Block Mark Chapman told Business Insider. “If the tax office audits you and you can’t show a receipt, you’ll be in trouble.”
2. Lay off the dodgy deductions
As an accountant, Chapman has seen plenty of wild claims throughout the years.
“We’re in an interesting position because we see people from every walk of life and occupation,” he said. “I’ve had a carpenter who tried to claim back his holiday in the south of France because he was checking out some of the woodcarvings as well as the wine.
“There was also a fashion model who wanted to claim cosmetic surgery because it was going to lengthen her career and a TV host who thought he could buy a different suit for every night he was on air.”
None of those claims ever saw the light of day, which is lucky as the penalty for false deductions can be as much as 75% of the claim value.
“We see taxpayers claiming for things like private trips, trips they didn’t make, and car expenses their employer paid for or reimbursed them for,” ATO’s Assistant Commissioner Karen Foat said in a statement. “Over-claiming will be detected and if it is deliberate, penalties will apply.”
This year the ATO will also be targeting car and rental claims.
3. Know thy neighbour
It’s easy to assume the ATO is all bark and no bite but you might not know what powers they wield. “People don’t realise the ATO is an enormous information-collecting machine, they just hoover data up,” Chapman said.
They’ve certainly got plenty of access to it as almost 10 million Australians submit an individual tax return every year, with every dollar amount they earned that year as well as what they want back. The ATO then pulls it all together so they can make detailed comparisons to review your tax return.
“It’s called the Nearest Neighbour and what it does is compare your occupation and suburb to others with similar or identical ones,” Chapman said. “It will actually tell you as you’re claiming in real time whether a figure is higher than average and ask whether you really want to submit it.”
4. Know your occupation
That’s not to say there aren’t genuine deductions that you’re probably missing out on. Depending on what you do for a living, what you can or can’t claim changes pretty dramatically.
Workers in the adult industry, for example, can claim things like sex toys, personal lubricant and all manner of accessories if it relates to their job, according to H&R Block.
If you don’t get paid for using it, however, don’t try and claim it for personal use.
Workers are able to claim a modest handbag (no Gucci) or a backpack or satchel for work purposes.
If you require a guard dog or a farm dog, both of those can be claimed as well.
If you’re unsure, there are plenty of guides out there, like this one outlining common claims in specific sectors.
As long as you need an item for work and it falls within the ATO’s guidelines, there’s probably a good chance it’s legitimate.
5. Be wary of submitting early
If you’re in for a hefty tax return, you might want to claim it as soon as you can but there’s a good reason to hold off. Most data from different institutions take a few weeks to update in the system.
That means if you wait, you’ll have all the information you need — like bank interest, share earnings and health insurance — all ready for you.
Despite doing them every single year, Australians still haven’t figured their tax returns out. “Seven out of ten returns randomly selected for review had one or more errors,” Deputy Commissioner Alison Lendon said.
While the majority of those mistakes are small and genuine mistakes, some aren’t.
“A smaller number of people are deliberately doing the wrong thing -– that has a significant impact on revenue. These people can expect closer attention from us, especially this tax time,” Lendon said.
Make sure you review what you’re claiming before you click submit.
6. Crypto counts
A common mistake is believing that cryptocurrency isn’t subject to tax.
Trading it is exactly the same as selling shares or a house and subject to capital gains tax (CGT).
Just because it’s a decentralised digital currency, it doesn’t mean the platforms you trade on don’t make declarations to the ATO.
While that might take a bite out of your earnings, it can also be used to take the ache of your losses.
“If you lost money trading crypto you can count it as an investment loss, and reduce your tax obligation,” Chapman said.
Even if you forgot to do so last year, you can always go back and have it recorded with the ATO.
7. See an expert
If unsure about anything, it always pays to see an expert. This article contains information only, it is not intended to be used as general or personal advice.
“An accountant can very quickly and easily tell you what you can and can’t claim and potentially save you a lot of time and money,” Chapman said.
Business Insider Emails & Alerts
Site highlights each day to your inbox.