Here are our recommendations when lodging your tax return. With the 2019 Tax period approaching, we thought we would clarify some of the most common mistakes made amongst many Australian taxpayers to avoid possible penalties from the Australian Taxation Office.
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. You are however only entitled to claim the work-related proportion in your tax return as a deduction and 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 if you have a motor vehicle which you own that you use for both private use and work-related activities, such as dropping your kids off at school on the way to work but also to client meetings during the week. Remember that travel to and from work is generally a non-tax-deductible expense unless your business is based from home as it is considered private use of your motor vehicle. Whereas 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 for you to be entitled to a tax deduction. As a sole trader, this is super important as there can be many expenses incurred during the financial year which you can claim a deduction for. It is essential to keep any relevant tax affair records for up to 5 years after lodging your tax return for possible ATO audit purposes. When managing your claimed tax deductions, it is advised that you safeguard yourself by taking copies of your receipts in case they are misplaced or damaged. You can keep hold of this by scanning or taking pictures for soft copy record keeping.
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 all income that you receive during the financial year as partial income declarations are a common error made by early lodgers. This includes foreign income which is commonly overlooked.
It is recommended that taxpayers avoid such mistakes which may lead to possible penalties from the Australian Taxation Office by waiting until the ATO prefill reports are made available in August. The report automatically inputs the majority of the information from your employers, financial institutions and government agencies such as PAYG summaries, interest/dividend income and government payments received. Although the prefill report may not include all income received due to a number of reasons, 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.