Be careful not to try to cheat the taxman

SCOTT Pape answers readers questions on investments, saving, budgets, tax and all things financial.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

“MY accountant, Dennis, always got me a good refund,” said my wife, head cocked, arms folded, brow furrowed.

“The honeymoon is over, baby,” I replied.

Just before we got hitched and consolidated our private lives, we also merged our financial lives.

That meant ditching Dennis, my wife’s “registered tax agent” who ran his operation from his mum’s place (Dennis is 50-something) and moving her over to my tax team.

I gently explained to the new co-director of Barefoot Inc. that, even though she wasn’t getting a refund, we’d actually been able to lower our overall taxes by splitting our income and salary-sacrificing into her superannuation.

“It’s a sacrifice all right,” she said.

“Fair enough,” I nodded.

There was no need to cause a boardroom spill with my newest director and shareholder. (And to be fair, over the past couple of years she’s gained an awesome understanding of our family finances.)

Besides, I’ve learned that most people view their end-of-year tax return like an episode of Deal or No Deal: Andrew O’Keefe flashes a toothy grin and says “You’ve just won a $1500 tax return!”

“Deal!”

(And the crowd goes wild.)

Let’s forget for the past 26 pay slips they haven’t taken much notice of what Canberra clips from their wage — our contestant is too busy dreaming about the shopping spree that will ensue.

The truth is that you only get a refund if you’ve been taxed too much. Often that occurs if you’ve had lumpy earnings throughout the year (bad) or if you’ve been able to lower your taxable income through various deductions (good).

Who the Taxman is Targeting This Year?

EACH year around tax time the ATO unveils its tax “hit list” of occupations it is targeting.

Just putting a job on the hit list will boost the tax take by 22 per cent for the year (like when they targeted Aussie actors who played the starring role in Crocodile Dundee).

So, who is the ATO targeting this year? Tradies (they always target tradies), anyone working from home and anyone claiming a work-related expense. In other words, we’re all on the hit list this year. And this year they have the computing power to check the legitimacy of every single tax return. And they will.

The ATO operates under a self-reporting system, which means it’s up to you what you put on your tax return. However, the ATO boffins also data-match 640 million separate transactions — cross-referencing bank accounts, share certificates, Centrelink payments and more. The ATO is tracking you closer than your crazy ex-boyfriend. The result was that last year the ATO sent out 500,000 “please explain” letters, netting an additional $973 million from individual taxpayers.

Think of the ATO’s supercomputer as a sniffer dog at the airport. It’s the first tip-off. Being audited is when the security officers take you into that little room, close the curtains, and pull out the rubber gloves.

The rules around what you can legitimately claim as a work-related expense are as strict as they are varied, but there is one golden rule: no receipt, no deduction.

So with that in mind, here are some tech tax hacks that will make it ridiculously easy to claim what you’re entitled to.

Tech Tax Hacks

WHEN I first wrote my book (remember them?) I used the shoebox method of tax receipt collection. I would buy a new pair of shoes each financial year and use the box as a very unsophisticated financial filing box.

These days I used an app called Shoeboxed, which performs basically the same function.

But instead of hoarding the physical receipts, I take a snap with my phone and it automatically scans the digits (don’t ask me how it does this) and inputs and categorises it into Xero, the small business accounting software we use.

Then it automatically backs it all up somewhere in the “clouds” over Bendigo. Then I take the paper-based receipts and make complex origami swans from them.

If you don’t run your own business, Shoeboxed is probably overkill. Instead, just use your phone as a digital record (the ATO allows electronic copies of receipts) and send them to your email account with the heading “tax receipt FY2014” in the subject line. Remember you can only claim stuff that’s legitimately related to your work and which hasn’t been reimbursed by your employer.

You need to keep your receipts for five years, though if you’re an employee with a simple setup you’re only required to keep them for two years. (Then again if you go digital it doesn’t really matter — and hey, you never know when your house will burn down.)

There are a couple of ways to claim your wheels as a tax deduction, but the most common requires you to keep a logbook for a continuous 12-week period (which is then valid for the next five years).

You’ll need to track the odometer reading, petrol and other running costs — which is a lot harder than it sounds. The easiest way I’ve found is using an app called VehicleLog. It costs $10.99, but it’s a huge time saver (and it’s tax deductible).

How to Get a 100 Per Cent Tax Deduction

THE best way to get a 100 per cent tax deduction is to get your boss to pay for your work-related expenses.

You may not always be able to swing a pay rise, but you should be able to negotiate extras, like having your employer pay for your mobile phone calls (or covering part of your monthly plan), getting an allowance for work-related travel, or having them pay for a course that will make you a more profitable employee.

And remember, compared to the 100 per cent deduction you can get from your employer, “fully tax-deductible” purchases mean that you’re spending $1 just to get 46.5c back (if you’re an ultra-high income earner paying the highest rate of tax). And it could also come with a free tax “prostate exam”.

Tread Your Own Path!

Originally published as Be careful not to try to cheat the taxman