Tax Time in Australia: Avoid These Common ATO Mistakes

As tax time approaches, the Australian Taxation Office (ATO) has highlighted three common errors that taxpayers should avoid. Here’s what you need to know to ensure a smooth and compliant tax return process.

Incorrect Work-Related Expenses

The ATO is focusing on taxpayers who claim incorrect work-related expenses. Last year, the rules for working-from-home deductions changed. The previous $0.80/hour and $0.52/hour rates were replaced by a new fixed rate of $0.67/hour starting July 1, 2022. This new rate comes with stricter record-keeping requirements. To claim this deduction, you need to keep detailed records such as a spreadsheet or calendar to document your work-from-home hours and bills to prove additional costs incurred.

According to ATO Assistant Commissioner Rob Thomson, “Deductions for working from home expenses can be calculated using the actual cost or the fixed rate method. Keeping good records gives you the flexibility to use the method that works for you and claim the expenses you are entitled to. Copying and pasting your working-from-home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’.”

Inflated Rental Property Claims

Rental property deductions are a significant focus for the ATO. Their data reveals that nine out of ten rental property owners make mistakes in their income tax returns. A common error is confusing general maintenance with capital improvements. General maintenance, such as replacing damaged carpet or fixing a broken window, can be claimed as immediate deductions. However, capital improvements, like installing a new kitchen, must be claimed over time as capital works.

Thomson notes, “We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we’re keeping a close eye on this. This year, we’re particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit.”

Failing to Include All Income

It’s crucial to include all sources of income when lodging your tax return. Many taxpayers rush to file their returns on July 1, but the ATO advises waiting until all your income is pre-filled, which usually happens by the end of July. This includes income from banks, dividends, payments from other government agencies, and private health insurers.

“We see lots of mistakes in July where people have forgotten to include interest from banks, dividend income, payments from other government agencies, and private health insurers,” Thomson said. “By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO. We know some prefer to tick their tax return off the to-do list early and not have to think about it for another 12 months, but the best way to ensure you get it right is to wait for just a few weeks to lodge.”

Tips for Accurate Claims

• Spend the money yourself and not be reimbursed: Ensure that you have actually spent the money on the claimed expenses and that you haven’t been reimbursed by your employer
• Directly relate the expense to earning your income: The expense must be directly related to your work and necessary for earning your income
• Keep records to prove your claims: Maintain detailed and organised records, such as receipts, invoices, and logbooks, to substantiate your claims

Consult a Registered Tax Agent

When in doubt, it’s always wise to consult a registered tax agent. They can provide expert advice and ensure that your tax return is accurate and compliant with ATO regulations.

Lodging Your Return

Avoid the temptation to rush and file your return on July 1. Waiting until all your income information is pre-filled by the end of July helps minimize errors and ensures a more accurate tax return. This practice can save you from potential issues with the ATO and help you claim the deductions you’re entitled to correctly.

By following these tips and understanding the common pitfalls, you can navigate the tax time with confidence and ensure a compliant and accurate tax return.

Feel free to reach out to a member of the MaxGrowth team on 02 9267 4468 or [email protected]

Disclaimer: The following article provides general information and should not be considered as professional financial or legal advice. For specific advice regarding your business, consult with a qualified professional.