Let’s admit it. Putting together a tax return isn’t exactly something most people relish. But completed correctly, it can be one of the largest lump sum payments some of us receive each year. So, it definitely pays to get it right!
Unfortunately, though, not all of the 8.5 million or so Australians who submit a tax return each year will do it properly. The ATO conducts some 450,000 reviews and audits each year, and adjusts somewhere near $1 billion in over-claimed returns. And it would be next to impossible to guess the amount of money Australians are leaving on the table by under-claiming!
So, what exactly are we all doing so incorrectly when it comes to our taxes each year? Below are some of the more common mistakes.
1) Waiting until tax time to think about tax time
If you’re struggling with missing information or proof of purchases, you may be guilty of neglecting your taxes throughout the year. This can make life unnecessarily hard at tax time, when staying tax-ready throughout the year can be easy.
Developing a few simple habits can make a world of difference – like taking photos of all your receipts, or printing your bank statements at the end of each month, and highlighting any work-related expenses.
For those who are more digitally inclined, there are also a number of apps that can also help you track your expenses, so everything is immediately good to go come EOFY. Too simple!
2) Going DIY
Yes, we know you’re super intelligent, and also totally great with numbers. But could you honestly say that you are completely on top of Australian taxation legislation?
If you haven’t spent several years or decades of your life working exclusively in tax – don’t do your own tax returns. Just don’t. There are plenty of affordable accountants who will easily make you more on your tax return than what their fee (also claimable) will amount to.
3) Over- or under-investing in your tax expert
It also pays to get the balance right when it comes to selecting your tax professional.
Own 15 investment properties, a share portfolio that could rival an investment banker, and a series of proprietary limited trusts? Perhaps it might be an idea to shoot for that Big Four accounting firm and hire a dedicated tax specialist with decades of experience.
Work at a pizza shop and haven’t yet started accruing university debt? Your local accountant will probably work just fine.
Over-investing can mean throwing away money needlessly, but under-investing can sometimes be even more costly in unclaimed deductions or mistakes. Choose wisely according to your personal circumstances.
4) Thinking it’s too late once it’s submitted
If you’ve gone the DIY tactic for whatever reason, but then made a mistake – don’t fret. The ATO allows you to easily correct your return via their website, so there’s no need to worry about any accidents. Jump online, and save yourself a potential fine.
5) Failing to declare overseas income
Those six months earning 8 euro an hour as an English-speaking nanny in Barcelona surely don’t count at tax time, right? Wrong…
You will need to declare any earnings made overseas, including employment income, pensions and annuities, investment income, government or business grants, and even capital gains on any overseas assets.
And if you’re thinking you won’t be found out, think again. The ATO regularly targets Australians with undeclared assets or income overseas. Increased data sharing between governments around the world also means it’s only a matter of time before you are caught.
Want to know the secret to a maximized return? Deductions, deductions, and more deductions!
Even though deductions can even drop you from one tax bracket into a lower one, thousands of Australians are still under-claiming in many areas. This is where religiously tracking your expenditure, and using a professional, can make a world of difference.
That being said, you can’t claim everything.
As an example, you can’t claim tax the full year through on your investment property if you or your friends lived in it for any period. You also need to consider your situation. If you are a security guard, you can claim for a guard dog. But if you are working from home and simply have a dog, no, it cannot be claimed!
Large fines apply – so be safe, not sorry.
8) Getting sloppy with the proof
No proof = no claim for items over $300 in the category “Other work related expenses”.
But a common mistake made here is thinking that the items have to EACH be under $300 – not less than $300 in TOTAL. Some work-related expenses also go under different categories, such as laundry, travel, or FBT. So, it pays to keep receipts of absolutely all expenses, and let your tax professional assign them to the appropriate categories.
This one really is a no-brainer. You have to complete your return at some point, so why not meet the 31 October deadline?
Fines can apply for late returns. And while the risk may be low if you’re owed money by the ATO, if you are the one owing them money – you better believe you will hear from them.
10) Hating tax time
When you have a negative attitude towards something, it will always be hard to do a great job at it. But if you approach your taxes knowing that a small amount of dedication can lead to a great return, it can help to make the whole process feel like less of a chore.
You may even find yourself relishing the process, knowing you are helping yourself achieve the maximum return. Just think of the shopping trip or holiday you may be able to afford as a result – and get off the couch and get started!
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Katrina Haskew is Managing Director of Leading Advice (www.leadingadvice.com.au), a family-run financial advisory firm that helps its clients and their families build and protect their wealth, now and into the future.
DISCLOSURE: Katrina Haskew & KGH Financial Pty Ltd trading as Leading Advice ABN: 52 146 015 885 is a Corporate Authorised representative of Millennium3 Financial Services Pty Ltd ABN: 61 094 529 987 Australian Financial Services Licensee No. 244252. | 7/50 Borthwick Ave Murarrie QLD 4172
The views expressed in this publication are solely those of the author; they are not reflective or indicative of Millenium3 Financial Service’s position, and are not attributed to Millenium3. They cannot be reproduced in any form without the express written consent of the author.