The ATO has outlined common errors that need more attention when completing Income Tax Returns.
Are you aware of the following?
Work-related expenses
Individuals are entitled to claim deductions for certain work-related expenses if:
They spent the money and were not reimbursed by their employer
The expense was directly related to earning their income and not for a private purpose, and
They have a record such as a receipt, bank statement or diary entry to prove the amount being claimed or how it was calculated.
If the money was spent for both work and private purposes, only the work-related portion can be claimed as a deduction.
If an individual’s total claim for work-related expenses is more than $300, the person must keep receipts as evidence to prove the claim. If they claim below $300 in total, receipts are not required. However if we ask them, the taxpayer must be able to show how the claim was worked out and demonstrate that the cost was related to earning their income.
Common Errors
Errors commonly found for all types of work-related expenses include:
Claiming deductions when no money was spent
Claiming deductions for private expenses
Not correctly apportioning expenses between work-related and private purposes
Not having records to prove claims
Examples of common errors for specific types of deductions include:
Clothing, laundry and dry-cleaning expenses
Claims for ineligible clothing that is not occupation-specific, protective clothing or a unique distinctive uniform
Claims for a flat rate for laundry expenses without a reasonable basis for estimating the expenses incurred
Vehicle and travel expenses
Claims for private travel including travelling between home and work
Claims for car expenses that have been salary sacrificed
Claims for carrying bulky tools where the employer does not require the tools to be used for work or provides secure storage to keep them at the workplace
Claims for meal expenses when there was no overnight travel
Self-education expenses
Claims for paying Higher Education Loan Program (HELP) debts
Claims for expenses that are not directly related to current work activities
Claims for expenses reimbursed by the employer
Other work-related expenses
Claims for home office expenses such as phone and internet expenses that have not been apportioned between work-related and private purposes
Claims for the full cost of items that exceed the $300 asset threshold
Claims for safety equipment provided by the employer
Claims for meals associated with working overtime that exceed the amount spent
Claims for expenses reimbursed by the employer
Rental Properties
ATO random enquiry program showed nine out of 10 returns contained an error at rental deduction labels, particularly for ‘other’ deductions and interest.
Deductions for rental properties are only for the period the property was rented or available for rent. Similarly, if only part of the property was used to earn rent, only the portion relating to the income earned may be claimed.
Deductions for the decline in value of certain assets and, subject to the type and date of construction, certain capital works expenditure are available. They are also required to keep certain records to substantiate income and expenses relating to rental properties.
The government has recently moved to restrict or remove specific types of rental income deductions, including travel to a residential investment property, as part of their Housing Tax Integrity measures.
Common Errors
Common rental expenses errors include:
Claiming deductions for properties that are not genuinely available for rent
Claiming deductions for loan interest expenses when a portion of the loan was used for private purposes
Incorrect categorisation of capital works and capital allowances
Not having records to substantiate income received and deductions claimed.
Incorrectly apportioned claims for interest deductions
If you would like our advice in relation to your Income Tax Return, don’t hesitate to give us a call on 08 8418 2111 or email us at enquire@addept.com.au