The most common tax return mistakes are easily detected by the ATO. Every year they work harder to spot “problems” in your tax return. You can avoid that trouble…
Enhancements in technology and the use of data means we are able to take a much broader approach than previous years; and identify and investigate claims that differ from what is normal across all industries and occupations.”
Source: Australian Taxation Office 2016
Will you find yourself in the ATO spotlight?
It’s important to lodge an accurate tax return so you can avoid getting into hot water with the ATO. Exaggerated or “guesstimate” expense claims, or a lack of receipts and evidence, will rarely go unnoticed. Below we’ll outline four of the most common tax return mistakes: Avoid these and there’s less chance you’ll be walking along the ATO’s tax audit trail.
Our top 4 common tax return mistakes are:
1. Guessing or estimating tax deductions
Ensure you use accurate figures when you enter your income, deductions, and the amount of tax you’ve paid into your tax return. The ATO has records of tax paid so can compare what you submit against the information they already have.
Inaccuracy is a common tax return mistake but one that should always be avoided. All your entries must be correct and complete. Just a few out of place dollars can spark the ATO’s attention.
TIP: Always wait until you receive you official PAYG summary before you complete your tax return. Also ensure you enter the actual amounts on your receipts into your deduction claims.
2. Failing to declare overseas income.
It’s easy to forget to pay your Australian taxes when you live or work overseas for a period of time, so many people do. Others simply don’t think they need to lodge a tax return here.
The fact is, if you are an Australian resident for tax purposes, you should still lodge an annual tax return in Australia when living and working overseas. 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
Are you working overseas but not sure about the tax rules?
The ATO provides great information for Australian taxpayers who live and work overseas: Click Here
3. Over-claiming for holiday and residential rental properties
The most common tax return mistakes relating to holiday and residential rental properties are often due to the strict rules applied to when you can and cannot claim tax deductions for the property related expenses over the year. If you own a residential or holiday rental, it’s worth making note of the following. Not all expenses can be claimed!
Holiday rental properties:
- Remember that you can’t claim deductions on a holiday rental property that is not genuinely available for rent. For example: When you stay in your holiday home personally or periods when you allow friends or relatives to stay in the property free of charge. These periods of occupancy must be removed when calculating your overall expenses.
- If your holiday rental is only available to rent for part of the year, you must adjust your deduction claims based on the portion of the year the property was for rent. Your Etax Accountant can help you do this.
- If you and your spouse jointly own a property, split the expenses incurred evenly between both tax returns. In the online Etax tax return, you can specify your percentage ownership of the property. You should claim only your percentage of all claims and figures for that property. (This also applies for residential rental properties.)
Residential rental properties:
- You must declare all the income you earn from your property each financial year.
- You can only claim expenses for the period of the year the property is available for rent. Also, the expenses relating to the property prior to be it being rented for the first time are not claimable.
- The costs of renovations and capital works cannot be claimed straight away. These are claimed at 2.5% of the total cost, each year, for 40 years.
4. No proof of purchase
Without receipts for your expenses, you can only claim a maximum of $300 worth of work related expenses.
Chances are, you are eligible to claim more than $300, which can boost your tax refund considerably. However, with no receipts, it’s your word against theirs. The ATO says, no proof, no claim, so keep your receipts year-round. It is critical that you keep good records and track of all of your receipts throughout the year so you never miss out at tax time; this will save you money.
Remember: If you over-claim receive a bigger refund than you’re entitled to, the ATO can ask you to repay the difference – plus interest charges and possible penalties added on top.
If you have a question about a particular deduction or expense you’d like to claim, please contact your Etax Accountant by clicking ‘My Messages’ when logged-in, or when you fill out your tax return. You’ll get expert advice to ensure you get the best refund possible while also ensuring your return is lodged correctly.
Is keeping track of receipts a headache for you at tax time?
Check out our blog The Key to Paying Less Tax is Good Record Keeping to help make sure you’ve got your record keeping on track to legally maximise your tax return.