Avoid these common tax return mistakes

The Australian Taxation Office (ATO) has provided a heads-up about the areas it will be focussing on when reviewing tax returns this year.

The ATO says there are three common tax return mistakes made by taxpayers:

  • Incorrectly claiming work-related expenses
  •  Inflating claims for rental properties
  •  Failing to include all income

ATO Assistant Commissioner Rob Thomson says that while theses tax return mistakes are often genuine, sometimes they are deliberate. “The ATO is focussed on supporting taxpayers to get their lodgement right the first time,” he says.

The ATO has also warned that its more lenient pandemic-era approach is over, and that debt collection and unpaid superannuation guarantee charges will be actively pursued. i

Check work-related expense claims

More than eight million people claimed work-related expenses last financial year, but the ATO says taxpayers are still claiming expenses they did not pay for themselves or for which they have already been reimbursed.

If you claim expenses with no connection to your work or those covered by a work allowance, your return is likely to face extra scrutiny. It is also essential to have a record (usually a receipt) to prove the expense.

For those working from home, the ATO has made changes to the fixed rate for calculating a working-from-home deduction to broaden what is included, increase the rate, and change the type of records you need to keep.

You now need comprehensive records to substantiate your claim, including proof of the actual number of hours worked from home in a calendar, diary, or spreadsheet. You will also need proof of the extra running costs you have incurred, such as a copy of your electricity or internet bill.

The ATO says that copying and pasting your working-from-home claim from last year may be tempting, but it will likely result in a ‘please explain.’

Another way to attract the ATO’s attention is to suddenly claim a large expense you have not claimed in previous years or claim a deduction unlike those made by other taxpayers in the same industry.

Take care with rental property deductions

Rental property owners are also coming under the ATO’s watchful eye after data showed that about 90 per cent of rental property owners make mistakes on their tax returns, most often by inflating expenses.

The ATO says that claims for repairs and maintenance are often incorrect. While general repairs and maintenance expenses can be claimed as immediate deductions, capital expenses (such as initial repairs on a newly purchased property or improvements) must be deducted over time as capital works.

An immediate general repair deduction might be the replacement cost for a damaged carpet or broken window, but replacing an old kitchen with a new and improved one is considered a capital improvement. iii

Include all income when lodging

Taxpayers who do not include all income they receive in their returns are also under the microscope.

Failing to declare income (including rental income and earnings from online platforms like Airbnb, Uber, or Airtasker) can result in significant penalties, with the ATO’s data-matching program making it easier to get caught. iv

The ATO is also warning taxpayers against rushing to lodge returns in early July because their interest information may not be available. Many taxpayers forget to include interest from banks, dividend income, and payments from government agencies and private health insurers when completing their returns.

Taxpayers are urged to wait until the end of July before lodging to ensure their income information is pre-filled, making the return process smoother. According to the ATO, lodging in early July doubles the chances of having your tax return flagged as incorrect.

Checking that your employer has marked your income statement as ‘tax ready’ and ensuring your myTax information is pre-filled will avoid later amendments and unnecessary delays. Failing to lodge your return on time can also trigger an ATO audit, as can making mistakes in your return.

If you need help with preparation of your income tax return this financial year, we can put you in touch with our accounting team who can provide guidance and strategies to ensure that you avoid these common tax return mistakes and subsequent penalties.

 

Sources

i https://www.ato.gov.au/media-centre/addressing-collectable-tax-debt-tax-institute-s-tax-summit-2023

ii https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/working-from-home-expenses/fixed-rate-method-67-cents

iii https://www.ato.gov.au/media-centre/get-your-rental-right-this-tax-time

iv https://www.ato.gov.au/about-ato/commitments-and-reporting/in-detail/privacy-and-information-gathering/how-we-use-data-matching

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