At this time of year, mention of the Australian Tax Office is frequent. There are many resources available to assist you with filing your taxes, however the ATO website has been created expressly to address your concerns and offer instructions on how to complete your tax return accurately.
MyTax, another online service offered by the ATO, streamlines the entire tax filing process. This blog post provides some fundamental details regarding myTax and its capabilities, as well as a list of mistakes that people frequently make when completing their taxes.
People frequently make mistakes when it comes to taxes. This blog post is for you if you've been wondering what some typical tax blunders in Australia are.
Forgetting about their interest and dividend income from investments, failing to complete the proper forms at the appropriate time, and taking too much or too little money out of superannuation funds are just a few examples of common tax blunders in Australia.
What should you do with your tax return, do you know? The majority don't. You can learn more about the most typical tax-related mistakes Australians make in this blog post, as well as how to prevent them in the future.
Typical Tax Return Errors
The ATO is capable of quickly identifying the most typical tax return errors. The ATO works diligently to identify errors on tax returns. It becomes easier every year as they are given more resources and access. Therefore, don't imagine that you can get away with taking a few extra deductions or without reporting your side-gig revenue.
The ATO now gathers a ton of data on each and every one of us. The ATO has access to all of our financial transactions, including those involving our work, share economy revenue, health insurance, Centrelink, child support, and bank interest.
These days, because the ATO already knows so much, filing your taxes is almost like taking a "honesty test."
They are unaware of your tax deductions. However, they are currently paying closer attention to those than anything else.
Here’s what the ATO says about it:
We are able to take a far broader approach than in previous years and discover and analyze claims that deviate from what is typical across all industries and vocations because to advancements in technology and the use of data.
It's crucial to file a correct tax return in order to stay out of trouble with the ATO. Exaggerated or "guesstimate" expenditure claims or those without supporting documents are frequently referred to the ATO for review.
List The Top Tax Return Errors
The following list of five typical tax return errors: Avoid them to reduce your likelihood of going on the "tax audit trail" of the ATO.
Making assumptions about your income and tax payments
Make sure to record your income and the amount of tax you've paid on your tax return with exact numbers. The ATO keeps records of this and compares your submission to the data you already have. Although they can view your accounts, they might not have records of various forms of revenue, such as consultancy or solo employment.
It can be challenging to be certain of all your income because some employers submit PAYGs, some use single touch payroll, and some might do nothing at all.
Your entries must all be accurate and comprehensive. Just a few erroneous dollars are enough to get the ATO's notice.
Ask a tax professional to directly get your ATO income data from the ATO.
Estimating Or Guessing Your Tax Deductions
The ATO has developed an obsession with the tax deductions that regular Australians claim. It would be more challenging to apprehend large corporations that hide all of their profits abroad and do not pay taxes.
Your tax deductions are one crucial detail about your taxes that the ATO is unaware of. They feel a little uneasy about this. You are the only one who can keep track of deductions.
Avoid using "creative" tax deductions since the ATO now examines each item you claim. Then they compare your deductions to those of others in your business, geography, age group, and industry, as well as their own "benchmarks". So be careful if the ATO thinks your deductions are excessive! It's important to have things arranged in advance because they also have a peculiar tendency for inquiring about items for which you cannot locate a receipt.
Failure To Report Foreign Income
Many Australians spend time working abroad during their careers. They frequently overlook paying their Australian taxes. Some people just believe they won't have to file a tax return at home. Both of those are poor choices. To keep your taxes out of difficulty and prevent hefty tax obligations if you work abroad, consult a tax adviser as soon as possible.
The truth is that even if you now live and work abroad, you need still file an annual tax return in Australia if you are considered an Australian resident for tax purposes (which is more involved than simply being here). This is due to the fact that you are required to report not just the income from your foreign employment but also any additional income that you receive from that nation.
Foreign earnings consist of:
- Annuities and pensions
- employment earnings
- investment earnings
- company earnings
- gains on international assets
Are you employed abroad yet unsure of the local tax laws? Then, you want to definitely consult a tax advisor. Don't leave it to chance, and unless you are really experienced, don't make your own tax return.
Excessive Expenses for a Rental Property or Vacation Rental
The rigorous regulations governing when you can and cannot claim tax deductions for the property-related expenses over the course of the year are frequently to blame for the most frequent tax return blunders connected to vacation and residential rental properties. It's important to remember the following if you manage a home or vacation rental. Not all costs can be reimbursed!
Holiday rental properties:
- Keep in mind that you cannot deduct expenses for a vacation rental that is not actually available for rental. For instance, during times when you physically occupy your vacation home or when you grant unrestricted access to guests or family members. You must subtract these times of occupancy from your total cost calculation.
- If your vacation rental is only available for a portion of the year, you will need to alter the amount of your claimed deductions to reflect the proportion of the year that the property was actually rented out. You can do this with the aid of your Accountant.
- If you and your spouse own a property together, divide the costs incurred equally across the two tax returns. You can indicate your partial ownership of the property in the online tax form. Only your portion of the total claims and figures for that property should be made by you. (Residential rental properties also fall under this.)
Residential rental properties:
- Each financial year, you are required to report all of the revenue you get from your property.
- Only expenses incurred during the calendar year that the property is rented out are eligible for reimbursement. Additionally, you cannot claim any costs related to the property before you rented it out for the first time.
- Capital improvements and refurbishment costs cannot be immediately claimed. Instead, they get compensated at a rate of 2.5% of the overall expense per year for 40 years.
No Deduction Receipts, No Purchase Proof
Many people make the costly error of spending money on things relevant to their jobs while throwing away the receipt.
Actually, the amount of work-related costs you can deduct without receipts is limited to $300.
It's still not a simple "free" tax deduction, though. That bothers the ATO. Therefore, they must be actual costs.
Remember that the ATO can require you to reimburse all or most of your tax refund, in addition to interest costs and possible penalties, if you over-claim your deductions and receive a larger tax refund than you are entitled to receive. This can happen if you get a larger tax refund than you are entitled to receive. That also applies to making significant deductions that you cannot support.
Common Tax Time Mistakes
There are a number of simple traps you might fall into while submitting your tax return, just like going to see your grandmother when you're on a diet. Get the most out of your individual tax return this year by avoiding these frequent blunders.
Make sure you are receiving a tax return that keeps you out of the ATO's sights by avoiding these typical blunders.
Not Declaring All of Your Income
The Tax Office requires a declaration of all of your income, not just the obvious income from your current job. This includes dividends from any shares you may own as well as interest on bank accounts. Did you work multiple jobs during the fiscal year? You must locate a group certificate from that job and submit it with any investments you have in your name.
Deductions for expenses related to vehicles or rental properties
We frequently receive inquiries about deducting expenses for your automobile or other motor vehicles as well as for rental property. And with good reason; there are some very intricate regulations surrounding them, including what records you must maintain. If you make a mistake and the ATO discovers it, you can be subject to an audit and a financial impact. We can assist in clarifying the requirements and ensuring that you have the appropriate documentation.
Falsely claiming expenses connected to your job
Professional ballerinas are allowed to use stage makeup, but regular lip gloss is forbidden. Workplace workers can deduct travel expenses for meetings but not for trips to their primary office. The point is that the Tax Office is extremely clear about what can and cannot be claimed. Your accountant can clarify these and uncover other tax breaks you might not even be aware you qualify for.
Top Errors to Avoid When Filing Your Tax Return
It pays to put in a little time and effort to make sure you have every detail of your return correct and that you have avoided some of the more common traps that people tend to fall into because 84% of taxpayers expect a refund and the average size of refunds last year reached over $3,000, respectively.
Claim What You're Entitled To
Any expense you incurred in generating your income is eligible for a deduction. Therefore, don't be afraid to claim an expense if you have the documents to back it up and it was linked to your job. Common deductions that many taxpayers take are as follows:
- cost of driving to work in your own automobile. Driving to and from work is excluded, however, it does involve going to see clients or suppliers and travelling from one job site to another.
- travel expenses for a job. If you must travel for work and spend money on meals and lodging, you may deduct such expenses up to the amount you actually spent. However, if your company gives you a reimbursement for your travel expenses, such payment is taxable income.
- tools and other equipment costs. If you spend money, you can claim it as long as it is used for work-related purposes (if it is used partially for personal use and partially for work, you can only claim the work-related component). This rule applies to both tradespeople and office workers. Items with a price of $300 or less are immediately fully deductible. Items that cost more than $300 can be deducted over a number of years.
A competent tax accountant will be able to advise you precisely what you may and cannot claim, reducing the likelihood of a later audit.
However, do not fudge deductions.
Only the amount you spent may be claimed. Therefore, only deduct expenses that you can show you paid for by providing an invoice, receipt, or bank statement, for example. Don't inflate deductions to get a higher return.
Self-lodgers using the ATO's myTax program are watched by the ATO's computer systems while they prepare their returns to make sure they aren't overclaiming. The ATO's computer systems compare your claims to those of people who are similar to you. If your claim raises red flags, myTax will issue a severe warning and encourage you to reconsider that deduction. If you disregard the warning, an audit may be coming your way!
If it is determined that your deduction claims are false, you will be obliged to refund the tax saved and pay interest of roughly 9% annually. A penalty between 25% and 95% of the tax evaded may also be imposed if the ATO thinks you acted irresponsibly.
Don't rely solely on the ATO's pre-filled data
Today, you may pre-fill a lot of your income information directly from the ATO's computers with the click of a button. However, be cautious and avoid assuming that income data is accurate or comprehensive. Always utilize your own data as the primary source (payment summaries, etc.). Some individuals believe that since the data is from the ATO, it must be accurate. That is a perilous supposition.
Even though you copied the data directly from the ATO's pre-filled data, if you omit income and the ATO questions you, the legal responsibility will fall on you.
Keep in Mind The Basics
The ATO holds up a lot of tax returns because taxpayers make simple errors like these:
- Changed your name or address? Before you file your return, let the ATO know. The ATO won't be able to connect it with your Tax File Number if you lodge under different details. There will be delays!
- Leaving out the specifics of your bank account? Since the ATO no longer mails refund checks, you must include your bank information on your return. No bank information, no refund.
- spelling error Your return may disappear into thin air as the ATO manually matches your information if you accidentally typed an extra letter into a crucial field, such as your name.
Get help!
Taxes are complicated, which is why 74% of Australians use a tax professional to complete their tax returns. If you file your tax return incorrectly, you could face penalties from the ATO or a smaller refund.
The majority of consumers find it much less stressful to simply provide their tax agent all the information they need, trusting that the agency will complete their return accurately and completely.
A seasoned agent will typically be adept at spotting those elusive tax deductions you didn't know you could claim, so they can frequently more than pay for themselves. The tax agent's fee is also deductible, which is the best part!
This fiscal year, the ATO is focusing on these three common errors.
This year, the tax office has stated that it would be focusing on addressing a number of difficulties that are typically linked with small-business tax returns. One of these concerns is ensuring that small enterprises correctly differentiate between private and commercial activity.
The Australian Taxation Office (ATO) has advised SmartCompany that it will be examining three significant compliance areas in addition to the regular mistakes made by small firms towards the conclusion of the fiscal year.
During the current tax season, small businesses should focus their attention on the following areas of compliance:
- utilizing third-party information, such as that from the Taxable Payments Annual Report, to make sure that more than $390 billion in contract-related income is reported on tax returns;
- maintaining a vigilant eye on claims for loss carryback and interim full expensing measures, in particular for those who have never incurred a loss before;
- Keeping a watch on small businesses to ensure that they are correctly differentiating between their personal and professional activities and recording their activities in accordance with this distinction is essential.
According to a representative for the Australian Taxation Office (ATO), businesses are obligated to ensure that the amounts of the JobKeeper and JobMaker Hiring Credit are declared as revenue in the tax return.
They went on to say that "We continue to focus on shadow economy behaviours," which include operating outside the system, purposefully avoiding disclosing income, and failing to satisfy payment and lodgement requirements.
The official did, however, emphasise that the ATO will be sensitive when assessing justifiable tax mistakes because of the effects that the COVID-19 outbreak is having on businesses.
We would like to reassure the neighbourhood that we will be compassionate and empathetic in the event that reasonable mistakes are made in good faith. However, individuals who purposefully try to get away with doing something wrong will be held accountable for their actions, they stated.
Common tax issues
When filing their tax returns, small businesses most frequently commit the following three mistakes:
- Declare all earnings;
- Account for any private use of company resources or finances; and
- Maintain all necessary records, or set up proper record-keeping procedures.
The bulk of a company's operating expenses can be written off against its taxable revenue so long as they can be shown to have a clear causal relationship to the generation of that company's taxable revenue.
The vast majority of a company's running expenses, such as those incurred for home-based enterprises, vehicles, and travel, are eligible for tax deductions for the enterprise. The fees that businesses incur to safeguard their customers and staff from COVID-19 are another eligible expense for tax deductions.
Attempts by businesses to write off expenses that are not tax deductible are most frequently made in the areas of entertainment expenses, traffic fines, and personal or domestic expenses such as the cost of childcare or clothing for the family.