The 5 most common Australian tax return mistakes (and how to avoid them)

Estimated reading time: 8 minutes

These common tax return mistakes are easily detected by the ATO

The five most common tax return mistakes Australians make are incorrect income reporting, inflated deductions, undeclared overseas income, rental property over-claims, and deductions without receipts.

The ATO works hard to find mistakes on your tax return, and with more funding and staff each year, it’s getting easier for them to catch every mistake. So, if you think you can get away with a few extra deductions or ‘forgetting’ your side-gig income, think again.

This is why most Australians use a tax agent (like Etax) who’s on their side.

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What the ATO doesn’t know? Your tax deductions. This is where you can boost your tax refund and keep more of your money. And that’s exactly why the ATO is watching your deduction claims more than ever.

Here’s how the ATO describe its approach:

Enhancements in technology and the use of data mean we can take a much broader approach than previous years, and identify and investigate claims that differ from what is normal across all industries and occupations.

So, let’s help you stay off their naughty list:

Our accountants explain the top 5 tax return mistakes

Here are five common tax return mistakes — avoid these, and you’ll stay well off the ATO’s radar.

Mistake 1: Reporting incorrect income on your tax return

On your tax return, make sure you enter accurate figures for your income and the amount of tax you’ve paid. The ATO has these records and compares what you submit against the information it already holds. It may not have records of some income types, like consulting or freelance work, but it can see payments made to your bank accounts.

With some employers sending income statements, some using single touch payroll, and some sending nothing at all, it can be hard to consolidate your income. Even a few dollars out of place can attract unwanted attention. That’s another reason using a tax agent is worth considering.

A tax agent will download your income data, directly from the ATO. Etax does this for you automatically, as soon as you start your tax return.

Mistake 2: Guessing or inflating your tax deductions

The one thing the ATO can’t see is your tax deductions. That’s exactly where they focus their attention, because only you know what you’ve spent.

That said, don’t think it’s okay to be “creative” with tax deductions, because the ATO will analyse every expense you claim. They compare your deductions against other people in your line of work, location, industry, age group, and their own ‘benchmarks’. If your claims look unusual compared to their benchmarks for your industry, expect a closer look at your return.

TIPS:

• Save receipts as soon as you make a purchase, so you don’t have to hunt for them later. (Here are some tips on managing your receipts).
• Enter the genuine amounts from your receipts into your tax return.
• Your tax agent can help! They know what the ATO is looking at, and they know exactly what is allowed in your deductions. (Learn more about tax deductions).
• How much can I claim without receipts? See mistake number 5 below!

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Mistake 3: Not declaring overseas income on your Australian tax return

Many Australians work overseas at some point and simply assume they don’t need to lodge a tax return back home. This can be costly.

If you work or have recently worked overseas, talk to a tax agent to make sure your Australian tax returns are up to date. It will keep you out of trouble and help you avoid large, ‘late’ tax payments down the track.

The fact is, if you are an Australian resident for tax purposes, you must lodge an annual tax return in Australia, even while living and working overseas.

You must declare all your foreign employment income and any other overseas income you receive.

Foreign income includes:

• pensions and annuities
• employment income
• investment income
• business income
• capital gains on overseas assets

If you’re working overseas and unsure about the tax rules back home, talk to a tax agent. The rules are easy to get wrong.

Mistake 4: Over-claiming rental property tax deductions

The most common tax return mistakes are due to the strict rules applied to when you can and cannot claim expenses for the property. It’s not as simple as you might think.

If you own a residential or holiday rental, it’s worth making note of the following:

Residential rental properties:

• You must declare all 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.
• You cannot claim expenses incurred before the property was first rented.
• 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.

Holiday rental properties:

• Remember, you can’t claim deductions on a holiday rental property that is not genuinely available for rent. For example, if you stay in the property yourself, or allow friends or relatives to stay free of charge, you must exclude those periods when calculating your deductions. Your Etax Accountant can help with this.

Final note on rental properties: If you and your spouse jointly own a property, you must each enter your share of the income and expenses on your own return.

• In the online Etax tax return, you can specify your ownership percentage of the property. You should claim only your percentage of all claims and figures for that property. (This also applies for residential rental properties)

Mistake 5: Claiming deductions without receipts

Paying for work-related items and not keeping evidence to support your claims is a costly mistake.

You can only claim up to $300 worth of work-related expenses without receipts. But even then, it can’t just be a ‘made up’ tax deduction. It must be a genuine expense.

Remember: If you embellish your deductions and get a bigger tax refund than you’re entitled to, the ATO can require you to repay some or all of your refund, and may also charge interest and issue a fine.

There are a few cases where evidence other than a receipt can also be accepted by the ATO. Our how to claim tax deductions without receipts blog covers these in more detail.

If you have questions about a particular deduction or expense you’d like to claim, contact an Accountant by clicking ‘My Messages’ when logged-in, or hop onto live chat as you fill out your tax return. You’ll get expert advice to ensure you get the best refund possible.

Frequently asked questions