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5 biggest tax return mistakes to avoid ahead of $3,000 boost

With average refunds reaching over $3,000, it pays to make sure you get your tax return right.

Mark Chapman tax returns
Tax expert Mark Chapman shares his top tips for getting your return right this year. (Source: Yahoo Finance)

With tax time just a couple of weeks away, now is the time to think about preparing your annual tax return. From July 1, 13 million Australians will be able to lodge a return.

With 84 per cent of them expecting a refund, and the average size of refunds reaching over $3,000, it pays to spend a little time and effort ensuring you’ve got every detail of your return right. Plus, making sure that you’ve avoided some of the more common traps that people tend to fall into.

So what are my top tips for getting your return right this year?

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You’re entitled to claim a deduction for any expense which you incurred in earning your income. So, if you have incurred a work-related expense, and you have the paperwork to prove it, don’t hesitate to claim it.

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A good tax accountant will be able to tell you exactly what you can and can’t claim, minimising the chances of an audit at a later date but consider claiming these:

If you’re required to wear a uniform as part of your role, the cost is deductible. Then there’s occupation-specific clothing; garments that aren’t every day in nature but would allow the public to easily recognise you as a nurse – these are all deductible.

You can also claim a deduction for the cost of clothing that you use at work to protect your ordinary clothes from soiling or damage, e.g. an overall.

The cost of laundering and dry-cleaning your eligible work clothes, such as your required uniform, can also be claimed.

You can claim a deduction for protective items such as gloves, face masks, sanitiser and antibacterial spray.

In relation to COVID-19 tests, these will be deductible where they are taken for work-related purposes, e.g. where there is a mandatory requirement under your employer’s COVID-19 policy.

COVID tests taken for private purposes (e.g. personal travel, convenience) are not tax deductible.

Claim for conferences and other training expenses. As well as the cost of the conference or course itself, that can also include travel, meals and accommodation costs – even where the conference or course is overseas, though you might need to apportion the costs (and disallow the private bit) if you spent some downtime on the beach afterwards!

Claim for professional subscriptions, whether to a professional body or to a trade union. The costs of renewing any annual practising certificate are deductible as are the costs of journals, periodicals and magazines that have a content considered to be aligned with your job or trade.

You can’t usually claim the cost of the daily commute to and from work. The only exception to that rule is if you have to carry bulky equipment to and from work because there is no secure place of storage for them at your workplace.

You can claim the cost of travelling between two workplaces. This includes public transport and taxi costs.

If you plan to use your own car for work purposes, you can either claim a set rate of 85 cents per kilometre for all work journeys, or you can claim the actual expenses incurred. If you choose the latter, you’ll need to keep receipts for all costs (including road tolls and parking fees) and also keep a logbook of all your journeys for a 12-week period.

If you’re required to work overtime, you can claim for the cost of buying meals provided you have been paid an allowance by your employer.

If you spend time working from home, you can claim a proportion of home running costs, either based on actual costs (in which case you’ll need receipts), or a standard rate of 67 cents per hour. The 67 cents rate covers:

  • home and mobile internet or data expenses

  • mobile and home phone usage expenses

  • electricity and gas (energy expenses) for heating, cooling and lighting

  • stationery and computer consumables, such as printer ink and paper

Therefore, be careful not to “double dip” and claim separately for mobile phone costs (even if you are using your mobile phone outside the home, for instance while you are on the road).

Equally, the 67 cents rate doesn’t include:

  • depreciation of technology and office furniture such as chairs, desks, computers, bookshelves.

  • repairs and maintenance of these items.

  • Office cleaning costs

So be sure to include separate claims for these items!

You can claim a deduction for items of plant, machinery and tools that you have bought. If the cost is less than $300, a deduction is claimable immediately, otherwise a deduction can be claimed over the “effective life” of the assets.

If you get your work through an agency, the cost is claimable.

You can only claim what you’ve spent. So, don’t inflate deductions in order to get a bigger refund and only claim for costs you can prove you spent, by producing an invoice, receipt or bank statement for instance.

Self-lodgers using the ATO’s myTax program are monitored as they prepare their return by the ATO’s computer systems to ensure they’re not over-claiming. The ATO’s computer systems compare your claims to those of others like you and if your claim rings alarm bells, myTax will give you a stern warning inviting you to rethink that deduction. Ignore that message, and you could be headed for an audit!

If your deduction claims are found to be incorrect, you will be required to repay the tax avoided, plus pay interest. If the ATO believes that you have acted carelessly, a penalty between 25 and 95 per cent of the tax avoided may also be charged.

These days, with the push of a button, you can pre-fill lots of your income information straight from the ATO’s systems. Take care though and don’t assume that income data is correct or complete. Particularly if you are lodging early, always use your own information as the key source data.

Some people assume that because the data comes from the ATO, it must be right. That’s a dangerous assumption, especially in July and early August.

If you omit income and get questioned by the ATO, the legal burden will be on you, even though you’ve taken the information straight from the ATO’s pre-filled data.

Lots of tax returns get held up by the ATO because taxpayers have made basic mistakes like these:

  • Name or address changed? Tell the ATO before you lodge your return. If you lodge under different details, the ATO won’t be able to match it with your Tax File Number. Delays will ensue!

  • Not included your bank account details? The ATO doesn’t send out refund cheques these days so you need to include your bank details on your return. No bank details, no refund!

  • Spelling mistake? If you’ve added an extra letter to a key field such as your name, that slip of the keyboard could consign your return to a black-hole whilst the ATO tries to manually match your details.

There’s a reason 70 per cent of Australians use a tax agent to prepare their tax return; tax is complicated! Get your tax return wrong and the comeback is on you, either with a lower refund or ATO penalties.

Most people find it far less stressful to simply pass on all their information to a tax agent and leave it to the agent to complete their return, safe in the knowledge that the return will be accurate and complete.

An experienced agent will usually be good at sniffing out those obscure tax deductions you didn’t know you could claim so they can often pay for themselves several times over. Best of all, the tax agent’s fee is also tax deductible!

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