The new financial year will soon be here which comes with it the annual obligation to submit our income tax return by 31 October. For many of us, the process is as painful as having your teeth pulled but the rewards can be great. Dr Adrian Raftery, principal of Mr Taxman and author of 101 Ways to Save Money on Your Tax - Legally! 2021-2022 edition (Wiley, May 2021, AU$29.95), shares with us seven common mistakes to avoid when doing your tax this year.
1. Mathematical errors (stupidity)
Small mathematical errors could result in big mistakes. A wrong number here or a bad calculation there may cost you thousands. So if you do your return yourself then make sure you “measure twice” and avoid any unnecessary headaches.
2. Car log books (carelessness)
For example, if you make a claim for motor vehicles expenses under the log book method then it is obvious that 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. Rental properties (greed)
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. Doing it yourself (arrogance)
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. Not lodging (forgetfulness)
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. Get them in as you could be costing yourself thousands in unclaimed refunds. My record was submitting 33 years’ worth of tax returns which netted the lucky person over $70 thousand in refunds!! If you know that you have to pay then lodge your return to avoid unnecessary late lodgment penalties. The ATO is always willing to negotiate payment plans.
6. Omitted income (dishonesty)
This year the ATO data-matched over 700 million transactions and expect to contact 500,000 taxpayers with discrepancies on their interest, dividend, trust and managed fund income as well as capital gains on shares, cryptocurrency and properties. This process is quite lucrative as more than $1 billion is usually raised in tax revenue each year due to audit investigation by the ATO. Overseas income as well as income from the cash and sharing economies (for example, Airbnb, Uber, Airtasker, Camplify and Car Next Door) plus cryptocurrency trading are particular areas of focus this year. You can run from the taxman but you can’t hide.
7. Claiming less than what you are entitled to (laziness)
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. Don’t just claim the cents per kilometre method for car expenses or the 80 cents per hour shortcut method for home office expenses, get your receipts and do your logbooks. 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!
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MR TAXMAN’S 10 QUICK TAX TIPS
- Claim a deduction for the costs you incur in running your home-office
- Keeping a car log book could increase your refund by thousands
- Take advantage of the Government’s free money service known as the “Super co-contribution”
- Minimise capital gains tax (CGT) by deferring sale or offsetting losses against gains already made
- Build your nest egg quicker by paying 15% rather than 47% by salary sacrificing into super
- Income expected to be lower next year? Bring forward some 2021/22 expenses into this year
- Recontribution to split superannuation between spouses
- Buy a new business asset and claim it as a tax deduction this year
- Keep your receipts
- Get a great accountant
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This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.
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These tips were provided by Mr Taxman, Adrian Raftery, author of 101 Ways to Save Money on Your Tax - Legally! 2021-2022 edition (Wiley, May 2021, AU$29.95). @mistertaxman www.mrtaxman.com.au
101 Ways to Save Money on Your Tax – Legally! 2021-2022 edition
By Adrian Raftery
Published by Wiley May 2021
ISBN 9780730391616
AU$29.95 / NZ$28.99
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For further information or to request an interview, please contact: Adrian Raftery on 1800 TAXMAN (1800 829 626) or 0418 210 599 adrian@mrtaxman.com.au