Did you know that for the 2022-23 financial year, Australians have so far claimed back around $24.5 billion worth of work-related expenses? That’s a significant chunk of money flowing back into your pockets! While claiming deductions and offsets is a great way to reduce your tax bill, these claims can present a massive problem if you don’t get them exactly right. Tax return mistakes, whether accidental or not, can lead to delays, penalties, and even audits from the Australian Taxation Office (ATO).
According to the ATO, there was a multi-billion dollar gap between projected taxes for the 2022-23 financial year and what Australians actually paid. When the gap is that large, you know the ATO isn’t just going to shrug and let it go.
With the ATO cracking down and the 2023-24 tax season just days away, now is the perfect time to explore the most common tax return mistakes Australians make. Of course, we’ll also cover what you need to do to avoid them. By ensuring your return is accurate and complete, you can maximise your tax refund and avoid any unwanted attention from the ATO.
How to stay off the ATO’s hit list this tax season
Each year, the ATO releases a “hit list”, filling us in on what they’ve got in their sights for the new financial year. Dodgy tax returns will always be on their radar. However, for the 2023-24 tax season, they’re zeroing in on:
- Work-related expenses that haven’t been correctly claimed
- Rental properties with inflated claims
- Income earned but not recorded
Even more scrutiny will be placed on work-related expenses and rental property deductions than in previous years. Indeed, audits on claims have been planned to double this year. Regarding income earned but not recorded, the ATO is paying particular attention to capital gains from crypto and other investment assets. They’re also cracking down on undeclared or under-declared gains from gig work and side hustles. So it’s more important than ever to get your tax return right.
These focus areas send a clear message: Make sure your claims are legal. Otherwise, there will be dire consequences.
ATO penalties for incorrect tax returns
In 2024, technology will continue to lead tax return investigations. Benchmarks and data-matching will be used to monitor abnormalities in the level of expenses claimed. The ATO will focus their attentions on work related claims, which include clothing, home office deductions, overtime meal claims, union fees and subscriptions, mobile phone and internet costs. It’s vital to understand that standard claims of $300 or less without receipts will also receive scrutiny.
In previous years, the ATO audited over 1,500 taxpayers with rental claims and issued $1.3 million in penalties. One taxpayer had to pay back over $12,000 for over-claiming expenses that were not genuine. Another was penalised $5,500 because they had not correctly claimed their rental interest deductions to account for private redraws on their investment loan. Recently, a Queensland-based business owner was sentenced to five years in prison after attempting to garner over $650,000 in fraudulent GST refunds (along with other tax-related offences).
The ATO will not accept excuses for incorrect claiming of expenses. So it’s best to avoid any mistakes what-so-ever.
How to avoid tax return mistakes
If you’re an employee, you may be able to claim a tax deduction for some costs related to your job. But the rules differ depending on your job and what the costs were for. Not all jobs have the same deductions and tax claims. So, how can you avoid ATO penalties for an incorrect tax return?
Here are the steps to follow:
Find out what tax deductions you can claim
Your best bet is to make an appointment with a certified tax accountant who can guide you on what you’re entitled to claim. This is especially important if you have a rental property or multiple streams of income.
You may be surprised to discover just how many things you aren’t actually entitled to add to your tax return. Thankfully, you’ll probably also discover quite a few things you can claim that you never would have thought to add. Consult with your tax accountant in person, over the phone, or online – whatever you find easier – and keep a running list of your claimable deductions.
Generally speaking, you should be able to include any costs you incurred from creating a business website or running costs such as phone and internet. You can also claim for things like machinery, tools, and computers. The ATO website has a list of occupations and industry specific guides to help you understand what claims you can make, what receipts to keep, what allowances you have and the legal requirements of your claims.
It’s handy to keep track of your deductions during the year, rather than trying to remember everything and dig up receipts at the end of the year. A good tip is to use a mobile app or a software program to keep on top of your record keeping as you go.
Your records should include:
- Receipts (paper, electronic, or photos)
- Bank statements
- Diary entries
Know your tax obligations
To claim a deduction for expenses that relate to your work, you must have:
- Spent the money yourself and received no reimbursement
- Spent the money on something directly related to earning your income
- Kept a record to prove it
The ATO doesn’t accept excuses
This year’s motto from the ATO is: Claim the right amount. No more. No less.
If this seems overwhelming for you, or you are simply too busy, book an appointment with one of ITP’s talented tax agents. Appointments normally take around 30 minutes to an hour. In that time, your accountant will help you maximise your deductions, take advantage of any tax credits available to you, and give you guidance on the records required to back up your claims.
All of our tax professionals undergo strict and regular training and are registered with the Tax Practitioners Board. They completely understand what you can and can’t claim a deduction for, and will keep you in the green year after year for an affordable rate. Best of all, you can claim back this fee in the next financial year.
READ ABOUT HOW ITP CAN HELP YOU GET READY FOR SINGLE TOUCH PAYROLL
Working with a tax agent: The best way to avoid tax return mistakes
Once you’re on the books as an ITP customer, you’re entitled to contact us any time of the year for free tax advice! Your personal consultant will happily help you with any tax-related questions completely free of charge. Making an appointment is easy. Just use our branch locator to find your nearest ITP office and schedule an appointment.
ITP The Income Tax Professionals has been serving Australians for 50+ years and counting. We offer a reliable, affordable, mistake-proof way to maximise your personal or business tax return. Give us a call, book your appointment online, or drop by your nearest ITP office today – our friendly accountants are ready and waiting to make tax stress a thing of the past!