There is a lot of misinformation around about how to file your taxes, which is why blindly following someone else’s bad tax advice could get you into trouble with the tax man.
Here are five of the most common tax myths and whether they’re true or false.
Read more from Mark Chapman:
Tax myth one: I was audited by the Australian Taxation Office (ATO) last year so this year, I’ll be safe from being audited again
If anything, the opposite applies. Once you’ve triggered risk flags at the ATO, you are well and truly “on the radar” and can expect to be scrutinised again, not just for your original “offence” but in respect of all your tax affairs.
So, if you were audited last year, there’s a good chance that this year’s return will be checked extra carefully and if the ATO finds something wrong, they won’t hesitate to demand that you “please explain”.
Tax myth two: You can ask the ATO for an extension of time to pay a tax bill
It isn’t in the ATO’s interests to cripple you financially by forcing you to pay a tax debt all in one go. Indeed, demanding immediate payment is a good way to scare someone away from interacting with the tax system altogether, with knock-on effects on tax return lodgements and overall compliance.
Instead, if you have a tax debt, you can ask to set up a payment plan to clear it in manageable smaller payments over an agreed period of time.
A payment plan takes much of the pain out of paying the debt – it allows you to break down your payment into smaller amounts that are made via instalments and spread over a fixed period of time.
Within a payment plan, you pay back a sum of money weekly, fortnightly or monthly until the balance is cleared. Just make sure that if you set up a payment plan, you stick to it.
Payment plans can be arranged by your tax agent or via ATO online services.
Tax myth three: I do some work at home in my home office; it is 20 per cent of the area of the house so I can claim 20 per cent of the rent or mortgage
The rules specifically exclude such a claim; the home office deduction rules limit claims to the outgoings in relation to the running costs of the home office.
So, items such as heating, electricity, cleaning, home internet and depreciation of desks, computers, carpets, chairs, filing cabinets and bookshelves are included but “ownership” costs (such as rent, mortgage interest, rates and home insurance) are prohibited for people simply who work from home.
Only people who run a home-based business can claim these costs.
A home-based business can be run:
At home – that is, you do most of the work at your home, for example a hairdresser who uses a room as a salon or
From home – that is, your business doesn't own or rent separate premises, e.g. an electrician who works at customer’s premises but stores tools at home and has an office to handle the paperwork.
To be eligible to claim, the area set aside in your home for your business must have the character of a place of business, for example:
It’s clearly identifiable as a place of business. You might have a sign identifying your business at the front of your house, for instance.
Tt’s not readily suitable or adaptable for private or domestic purposes
It’s used exclusively or almost exclusively for carrying on your business (a room that’s used for private purposes occasionally won’t qualify but a room that is used incidentally as an entrance to your home will be ok)
It’s used regularly for visits by your clients.
Tax myth four: I work as a retail pharmacy assistant part time, whilst studying full time for my Pharmacists degree, therefore I can claim my education costs as a self-education deduction
To claim a deduction for self-education costs, the course must either:
Maintain or improve the specific skills or knowledge you require in your current employment activities
Result in or is likely to result in, an increase in your income from your current employment activities.
This claim is not allowable as the education is designed to open up a new field of employment and does not relate to your current income earning activities.
Tax myth five: I work in a fashion shop and my employer requires me to buy and wear clothes from the shop whilst working, therefore I can claim these costs
Just because your employer demands that you wear clothing from the shop doesn’t make the clothing deductible.
You can claim for occupation-specific clothing that distinctly identifies you as a person associated with a particular occupation. For example, the chequered pants a chef wears or a judge's robe.
Occupation-specific clothing isn't every day in nature and allows the public to easily recognise your occupation.
The clothing doesn’t qualify as a “uniform” either, which must:
Be distinctive to your particular organisation so that a casual observer can clearly identify you as working for a particular employer
Identify the products or services provided by your employer (for example, by a logo on the uniform)
These particular clothes are of a conventional nature, are everyday attire and could be worn by anybody at any time.
Each taxpayer has different entitlements and requires personalised and professional advice. Now more than ever, we at H&R Block recommend all Aussies make an appointment and have a conversation with their tax agent.
Mark Chapman is director of tax communications at H&R Block.