Mistakes on your tax return could lead you into a bunch of trouble and can even cause unpleasant ATO debts and payments.
Every year, the ATO works harder to find “problems” in your tax return. You can avoid that trouble, and we’ll cover several important ways to do that, down below.
The most common tax return blunders are easily detected by the ATO
Mistakes on tax returns are not viewed kindly by the ATO. These days, the ATO collects a huge amount of information about all of us. Our employment income, bank and credit transactions, health insurance, centrelink, child support, bank interest… the ATO can see it all. Your tax return is almost like an “honesty test” because the ATO knows so much already.
What they don’t know is, your tax deductions. But they are watching those more carefully than anything, right now.
Here’s what the ATO says about it:
“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.”
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 often be flagged for investigation at the ATO.
Accountants list the top-5 tax return mistakes
Below we’ll outline five common tax return mistakes: Avoid these, and there’s less chance you’ll head for a walk down the ATO’s “tax audit trail”.
1. Guessing or estimating your income and 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.
With some employers sending PAYGs, some using single touch payroll, and some maybe nothing at all, it can be hard to be sure about all your income.
All your entries must be correct and complete. Just a few out of place dollars can attract the ATO’s attention.
TIP: Get a tax agent to download your actual ATO income data, right from the ATO. Etax does this for you automatically.
2. Guessing or estimating your tax deductions
The ATO has become obsessed with the tax deductions claimed by ordinary Australians. They could be nabbing big-business tax dodgers who hide all their profits overseas and pay no tax, but that’s more difficult. The fact is, they are looking directly at you and me.
There is one important thing the ATO doesn’t already know about your taxes, and that’s your tax deductions. This makes them a bit uncomfortable. Deductions are something only you can keep track of.
Don’t be “creative” with tax deductions because now, the ATO analyses every item you claim. Then they compare your deductions against other people in your line of work, your location, your industry, your age group, and their own ‘benchmarks’. If your deductions look too high to the ATO, watch out! They also have an uncanny knack for asking about items where you can’t find a receipt so it’s best to have that sorted in advance.
- Save receipts into your Etax account or a similar site you can log into on your mobile – and save the receipts right when you make a purchase so you don’t have to hunt for them later.
- Enter the real, exact amounts from your receipts into your tax return.
- Tax agents 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 number 5 below!
3. Failing to declare overseas income
Many Australians work overseas for a period of time during their lives. Often they forget to pay their Australian taxes. Others simply assume they won’t need to lodge a tax return back home. Those are both bad mistakes. If you work overseas, talk to a tax agent asap to keep your taxes away from trouble – and to avoid big tax payments.
The fact is, if you are an Australian resident for tax purposes (which is more complicated than just being here), then you should still lodge an annual tax return in Australia even if you are living and working 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
Are you working overseas but not sure about the tax rules back home? You really should talk to a tax agent. Don’t leave it to chance and don’t self-prepare a tax return unless you really know what you’re doing.
4. Over-claiming expenses for rental property or holiday rental property
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.
Learn More: Take a look at our blog post with 27 Tax Deductions for your rental property to see a list of deductible expenses you can claim for your rental property.
Live-In Landlords: Have a look at the special page about deductions and tax tips for live-in landlords.
5. No receipts for deductions, no proof of purchase
Paying money for work-related items and keeping no receipt is a costly mistake – one that a lot of 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.
More info: How much can I claim without receipts?
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 possible penalties as well. That also goes for claiming big deductions that you can’t prove.
If you have a question about a particular deduction or expense you’d like to claim, 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 and to lodge your return legally & correctly.
Is keeping track of receipts a headache for you at tax time?
Check out our blog Record Keeping Tips = Pay Less Tax to make sure you’re on-track to legally boost your tax return.