As the end of another financial year approaches, Deakin University financial planning expert Associate Professor Adrian Raftery (aka Mr Taxman) has some timely advice for avoiding the most common tax mistakes.
“For many of us, the process is as painful as having your teeth pulled but the rewards can be great,” said Associate Professor Raftery, author of 101 Ways to Save Money on Your Tax – Legally! 2017-2018 edition.
“However there are ways to take some of the pain out of lodging this year’s return.”
Associate Professor Raftery has offered advice on how to avoid the seven tax sins – stupidity, carelessness, greed, arrogance, forgetfulness, dishonesty and laziness – when doing your return this year.
1. Stupidity – mathematical errors
Small mathematical errors could result in big mistakes. A wrong number here or a bad calculation there may cost you thousands. If you do your return yourself then make sure you “measure twice” and avoid any unnecessary headaches.
2. Carelessness – car log books
If you make a claim for motor vehicles expenses under the log book method then make sure that you actually have a log book prepared in the correct format. It must be for a continuous 12 week period and prepared within the last five years. If you have changed your car or your job duties since you did your log book then you must prepare a new one.
3. Greed – rental properties
The ATO always sees a number of errors with individuals over-claiming expenses in rental property tax returns including initial repairs, interest on loans which include a private component, borrowing costs and claiming depreciation without a quantity surveyor’s report.
Conversely, I have also seen a number of returns where the taxpayer simply didn’t realise everything that they could claim, particularly land tax and strata levies.
If you have a real estate agent managing your property, then ask them for a summary of income and expenses to make the tax return process easier.
4. Arrogance – doing it yourself
Just as most people can change a tyre, most of us have the ability to do our tax ourselves but it usually pays to get an expert to look at your tax for you. The last thing you need is a knock on the door from the taxman because you claimed too much. A registered tax agent knows where the boundaries are in terms of what you can and more importantly can’t claim. And their fee is tax deductible too.
5. Forgetfulness – not lodging
There are a number of slackos out there that simply procrastinate and not only don’t lodge a tax return on time, but have several returns outstanding. Not doing returns could be costing you thousands in unclaimed refunds. As a tax agent, my record was submitting 33 years’ worth of tax returns which netted the lucky person over $70,000 in refunds. If you know that you have to pay then lodge your return to avoid unnecessary late lodgement penalties. The ATO is always willing to negotiate payment plans.
6. Dishonesty – omitted income
This year the ATO will data-match more than 650 million transactions and expect to contact 500,000 taxpayers with discrepancies on their interest, dividend, trust and managed fund income. This process is quite lucrative with $1.1 billion in tax revenue generated last year due to ATO audit investigations. Overseas income as well as income from the cash and sharing economies (for example, Airbnb, Uber, Airtasker, Camplify and Car Next Door) are areas of particular focus this year. You might think you can run from the taxman but you can’t hide.
7. Laziness – claiming less than what you are entitled to
You wouldn’t walk past a $100 note if you saw it on the ground so why do people think that it is ok to claim less than what they are legally entitled to so that they stay under the ATO’s radar?
Check and double check that you have the correct information and documents prior to lodging your return. If you have a deduction that is legitimate then claim it, no matter what size it is. Make sure that you go through all your receipts and graze through every line of all bank account and credit card statements because there are a myriad of deductions that you might be missing out on. If you have more than $300 worth of total deductions then you must have documentary evidence for the full amount – not just the amounts over $300. By all means go to the boundary but not over it.