H&R Block director of tax communications Mark Chapman details the top four mistakes retailers can make when preparing their tax return.
With tax time looming, now is the time to think about lodging your annual tax return.
Over the coming months, 13 million Australians will be lodging a return and with 84% of them expecting a refund, and the average size of refunds last year reaching over $3,000, it pays to spend a little time and effort ensuring you’ve got every detail of your return right and 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?
1. Claim what you’re entitled to
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.
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.
2. But don’t embellish deductions
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% of the tax avoided may also be charged.
3. Don’t rely on pre-filled data from the ATO
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.
This year, many employers won’t provide payment summaries to their employees.
Instead, they’ll report your year-end wage information direct to the ATO from where it can be pre-filled into your tax return.
However, they have until the end of July to do it, so if you’re an early lodger you’ll need to ensure that the 'year to date' information already held by the ATO matches your own records.
Similarly, many third parties, such as banks, pass information about you to the ATO late in July or even into August and this year, private health insurers are not obliged to provide you with a year-end statement (they too must now report your data direct to the ATO).
All this means that lodgers will often find lots of data missing from their pre-fill and further data that might be present but not up to date.
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.
4. Get help
There’s a reason 74% 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.