Here are our recommendations when lodging your tax return. With the 2019 Tax period approaching, we have identified some of the most common mistakes made by Australian taxpayers. Avoiding these will reduce the chance of penalties from the Australian Taxation Office.
Overclaiming expenses when lodging your tax return
Overclaiming expenses are a common mistake which many Australians make when lodging their tax returns to the ATO. There are numerous expenses which you incur that may have both a work-related and a private component. However you may only claim the work-related proportion in your tax return as a deduction. Keep in mind that you can’t claim a deduction for salary-sacrificed or reimbursed expenses which you have received from your employer.
For instance, there is some confusion that all travel which links to work is tax deductible, which isn’t the case. An example of this is motor vehicle use for both private use and work-related activities. Remember that travel to and from work is generally a non-tax-deductible expense as it is private use of your motor vehicle. Unless your business is based from home. However you can claim a deduction for the client meetings component which is work-related use of your motor vehicle.
When claiming a tax-deductible expense you need to keep a record of your expenditure to substantiate your claims. As a sole trader, there can be many expenses incurred during the financial year for which you can claim a deduction. You must keep any relevant tax affair records for up to 5 years for possible ATO audit purposes. When managing your claimed tax deductions, safeguard yourself by taking copies of your receipts in case they are misplaced or damaged. Scanning or taking pictures are easy soft-copy record keeping tools.
Declaration of income
If you lodge your return before the ATO prefill report is available in August of this year, it is essential that you include the full income that you receive during the financial year. This includes foreign income. Partial income declarations are a common error early lodgers make and may lead to penalties from the ATO.
Taxpayers can avoid such mistakes by waiting for the ATO to release the prefill reports in August. The report autogenerates the majority of your income information. The incomes sources include your employers, financial institutions and government agencies such as PAYG summaries, interest/dividend income and government payments. However, the prefill report may not include all income. Therefore, it is essential that you do not rely exclusively on the report and include all income you receive during the given financial year.
So remember the golden rule for tax deductions, for an expense to be tax-deductible there must be nexus between your work-related expense and you earning your income. We have created a handy tax calculator to help estimate your return.