Including new rules for claiming working from home expenses
Tax time is upon us once again. Read these income tax tips to maximise your opportunity for a tax refund…not to mention sleeping soundly at night, knowing you’ve satisfied your legal obligations with the Australian Tax Office.
Tip 1: Do it on time
If you’re completing your own tax return through the myGov portal, it must be lodged by 31 October. Most of your data should be automatically pre-filled by the end of July, so all you need to do is check that the details are correct, add in your legitimate deductions and submit.
Make sure you include investment income (e.g., dividends, interest and rent), gig/cash economy income and capital gains or losses (e.g., on the sale of an investment property, shares or cryptos).
If you are likely to miss the deadline, a registered tax agent (RTA) should be able to lodge your return for you later than 31 October, provided you register with an RTA before that date.
Tip 2: Watch our tax video
For a quick introduction to your income tax obligations, watch our short video Pay Your Taxes (4 minutes). It’s designed to help ADF members better understand the tax system, including their rights and obligations.
Tip 3: Read the ATO’s ADF Guide
The Australian Tax Office (ATO) has a guide for ADF members that explains what income must be declared and what expenses are allowable as tax deductions.
Work-related deductions could include car or travel expenses, uniform expenses, mess fees, self-education expenses, home office and certain fitness expenses.
Tip 4: Working from home expenses
It’s been reported that nearly 5 million Australians claimed working from home expenses in the financial year 2021-2022. That’s a significant proportion of the workforce.
Therefore, it’s important for taxpayers to note that in the current financial year (2022-2023), the system has changed. This year, you may choose the Actual Cost method (requiring you to keep significant records) or the Fixed Rate method at 67c per hour.
Car expense claims in the financial year 2021-2022 totalled $6.9 billion and were claimed by 2.9 million individual taxpayers. The average claim was $2,500, so it’s hardly surprising that in 2022-2023, the ATO is especially keen to ensure that claims are documented and legitimate.
A key point here is that you can’t claim private usage expenses, such as travelling direct from home to work and back. You can read the full details here.
Tip 6: Investment properties
According to the ATO, nine out of ten rental property investors make “mistakes” in their tax returns, especially in relation to interest deductions. A senior ATO official stated recently: “we see people refinancing their loans and then using the refinancing amounts for private expenses…such as buying a car or going on a holiday…..what we’re saying to people is that interest needs to be apportioned for the private expense”.
Other areas of focus by the ATO include people renting out their home through Airbnb and not declaring the income and/or overlooking the possibility that selling a property in which you’ve rented out a room may be subject to capital gains tax. The latter can be a complex area for ADF members, so it’s worth seeking professional advice if you’re in doubt about your tax obligations. See more below about getting advice.
Tip 7: Cryptocurrency trading
It’s been reported that over 1 million Australians bought or sold cryptocurrencies in 2021-2022. Therefore, it’s not surprising that the ATO is reminding taxpayers “that if you sell, swap or exchange cryptocurrency there are capital gains tax consequences that arise from those transactions”. Therefore, it’s important for taxpayers to check your crypto transactions (profits or losses) in your pre-filled tax returns with the ATO or through your accountant/registered tax agent portals
Tip 8: Keep records
Only make claims that you can prove with written records (e.g., receipts). While our tax system is basically an honour system (aka self-assessment), the ATO’s data matching software, which includes comparing your claims to those of your peers, is very efficient.
Taxpayers are selected at random every year for an audit and if you’ve made larger claims than your peers you may be flagged for closer scrutiny. You won’t necessarily be asked every year to provide evidence of your claims, but you should be prepared in case you are. Making false or undocumented claims can lead to substantial fines and regular audits of your tax affairs in following years.
Tip 9: Get help if you need it
If you’re not confident about preparing your own tax return or you need specialist advice, consider using a registered tax agent (RTA), or a qualified accountant if your tax affairs are complex.
There are hundreds of options available when choosing a RTA/accountant. When choosing a provider, make sure they are familiar with the tax deductions available to ADF members and make sure you understand their fee structure (which should be a flat fee, not a percentage of any tax refund to which you’re entitled).
Tip 11: Be organised
RTAs and accountants generally charge for the preparation of your tax return by reference to the time they spend on it, so being organised can save you money. If you collect receipts on random bits of paper and hand them over in the proverbial “shoe box” or can’t provide the evidence to justify the claims you want to make, you’ll end up paying far more in professional fees or will receive a tax refund which is lower than it should be.
Tip 12: Watch out for investment spruikers
Some RTAs and accountants may also be licensed financial advisers, mortgage brokers or real estate promoters, or they may be part of a network promoting these services. These operators may offer to do your tax return for “free” or at a heavily discounted rate, in return for your agreement to undertaking a “financial health check” or even signing up to the purchase of products from which they will earn commissions or incentives.
So be aware of the motives of these advisers before you engage them to prepare your tax return. They may not be acting in your best interests.
Tip 13: If you’re late, don’t wait
If you haven’t lodged a tax return for prior years, we recommend you lodge the outstanding return(s) voluntarily, rather than getting caught out by the ATO. That way, penalties will generally be lower and arrangements may be made to pay off any outstanding tax in a manageable way. In many cases, you could be entitled to a refund, so lodging outstanding returns may even turn out to be a financially pleasant experience.
Tip 14: Use your refund wisely
If you are fortunate enough to receive a substantial tax refund, use it wisely. An unexpected windfall like this could be used to pay off high-interest debt, set up an emergency fund, or be used to start a savings plan for a larger purchase you may want to make in the future. Consider sitting on your refund for a short time while you carefully think through your options to really make the most of the opportunity.
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