Australia’s great tax myths

THERE are tricks to save you tax, and then there are myths that come back to bite you. Don’t get caught by these old wives’ tales.

WE ALL know that taxes are a fact of life. But figuring out what we can deduct and how those deductions or tax breaks work can be hard.

This is partly due to the ever changing guidelines around taxation, but also it stems from the fact that for a lot of us being fluent in tax is about as challenging as speaking another language.

To understand some of the major tax myths, I turned to Robert Kenn who is a chartered accountant with more than 20 years’ experience deciphering tax doublespeak.

According to Mr Kenn, these are the five great myths of tax.

Myth 1: If you’ve got an investment property interstate you can claim all your family travel costs when you go up and stay near it on holiday.

When it sounds too good to be true, then it usually is. If your sole purpose and actual actions for the trip was to check the property, make some repairs, mow the lawns, see your local agent, and immediately return home: then probably your travel and accommodation costs could be deductible. But if you took the whole family, stayed at a hotel nearby for seven days and only popped in to see your investment property for an hour, then you can expect your tax agent will politely explain to you that your holiday costs would not be deductible.

Myth 2: All work related activities are tax deductible.

While there are many things that fall into this category, make sure you pay attention to work-related travel. Travel to and from work is not tax deductible. This year the ATO is paying specific attention to work travel expenses and also deductions for computer and phone usage.

Myth 3: The Australian Taxation Office’s do-it-yourself e-tax return for individuals is only compatible with Windows software.

This used to be the case, but thankfully the ATO has now confirmed you can use a Mac to prepare your e-tax return.

Apple lovers rejoice — you no longer need Windows to do your own tax return.

Myth 4: You cannot dispute the result of tax return with the ATO.

That’s not true. If you are not happy with the result of your tax return and you think that there is reason for it to be reviewed there are ways that you can apply to have it looked at again either by the ATO or an independent party.

Myth 5: Negative gearing only benefits rich people to get tax refunds.

Negative gearing is not only used by rich people and the tax refund still doesn’t cover your loss.

The bulk of negative gearing happens where people have borrowed to buy an investment, and the interest cost of their debt exceeds the income from the asset. This loss can then be written off against the person’s normal income.

So, yes, it can help to reduce someone’s tax bill, but don’t forget the person has still lost money on their investment in the short-term. If their loss for the year is $10,000 they don’t get $10,000 back from the tax office. Even if they are on the top tax rate, they’ll get back $4900 and will have to cover a loss of $5100.

And as for benefiting the rich, negative gearing losses are apparently claimed by about 1.9 million taxpayers, but the ATO’s latest statistics apparently show only 0.34m people are in the top tax bracket.

Hopefully now your view on tax is a little clearer and a little less smoke and mirrors. But if you have doubts you can always consult the ATO website.