How Aussies are missing out on millions in unclaimed tax

New research conducted by H&R Block has shown that the 3.3 million taxpayers who self-lodge using the ATO’s myTax service could be losing out on valuable tax refunds.

A recent review of an indicative sample of self-lodged tax returns from last year found that 59% of returns contained mistakes.

39% of taxpayers sampled had failed to claim deductions they were entitled to claim, as a result of which they missed out on refunds averaging $237.44 each. Extrapolated over the whole self-lodging population, that’s over $300 million in unclaimed tax.

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A further 20% of tax returns contained errors in the other direction. These taxpayers had either under-declared their income or over-claimed expenses and as a result, they owed the taxman an average of $800 each, leaving themselves vulnerable to being audited by the ATO, forced to repay the underpaid tax, plus penalties of up to 95% of the tax and interest at over 9% per annum.

So, what’s the reason for all these errors? Most likely, it comes down to lack of knowledge about our often complex tax rules. In other recent research, H&R Block found that 90% of taxpayers surveyed who DIY their returns are confident in the accuracy of the expense deduction information they submitted, however only 30% are fully aware of the types of deductions they can and can’t legally claim. 25% of respondents, for instance, thought that child care costs are tax deductible, which is not the case.

Overall, two thirds of respondents told H&R Block they believed they could claim things that would actually be illegal! That mismatch between perceived knowledge and actual knowledge might explain why so many self-lodgers get their deductions wrong.

Things aren’t much better when it comes to declaring income. About half of our survey responders didn’t know that income earned in the sharing economy – from driving for Uber perhaps, or renting out a room through Airbnb - is taxable. Given that the ATO is going hard after non-compliers working in the sharing economy, that knowledge gap could prove expensive.

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Clearly the potential to get it wrong is enormous, either through missing out on valid claims or incorrectly claiming items you’re not entitled to.

The lesson drawn by H&R Block is simple: don’t leave your tax return to chance, get help to get it right. 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 and maximising all the claims you’re entitled to.