5 common mistakes Aussies make on tax returns

With the possibility of an average tax return of $2820, you don’t want to miss out on extra cash. Find out where things can go wrong.

It’s a bumper tax year with Aussies expected to get back an average of $2820 from their return this year.

Tax offsets are expected to give many Aussies money back as cuts of $1080 were introduced for those earning under $126,000.

But while many people are looking forward to the extra cash in their account, Australians are making mistakes that could stop them from getting an even higher return or even worse – facing a fine.

Money expert and financial commentator Vanessa Stoykov said the pandemic has made money tighter for most Australians, so more people will likely be banking on a solid tax return this year.

“While most people lodge their tax return honestly, even making a simple mistake could lead to you being audited, which may lead to a fine or at least delay how long it takes for you to receive the money into your bank account, so it’s important to get it right,” she told news.com.au.

“Where possible, I strongly recommend using a professional accountant if you can to lodge your return, as they help you avoid any errors, plus their fee is tax deductible on your next return.”

These are the top five mistakes made at tax time according to the Australian Tax Office, said Ms Stoykov.

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There are some common mistakes people can avoid at tax time. Picture: iStock

1. Leaving out some of your income

Forgetting about money you earned from a part-time job or a side hustle is a big issue, and the tax office is cracking down on this, explained Ms Stoykov.

“If you earned money from babysitting or pet sitting a few times, or doing freelance work alongside your full-time job, it’s important to include all of this in your income when lodging,” she said.

Lots of people turned to the gig economy to make ends meet during Covid-19, added Elinor Kasapidis, senior manager of tax policy at accounting body CPA Australia.

“The ATO is aware of these side hustles and matches data from platforms like Uber, Airbnb and Airtasker against individuals’ tax returns. This means the jig is up on the gig economy this tax time,” she warned.

Gig economy workers often work as independent contractors, but the term broadly includes people who earn income from bartering or sharing as well, she added.

“If you drive people around, do odd jobs or freelance work, rent out your car or storage space, run social media accounts or sell products, you need to declare this income in your tax return,” she explained.

“The good news is that your expenses from earning this income may be deductible.”

Gig workers can claim deductions for most costs incurred in earning their income. Examples can include travel, vehicle, marketing, financing and home-office expenses.

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Don’t be scared to declare what you earn as a gig worker as you can also make deductions. Picture: Supplied

2. Claiming deductions for personal expenses

There is a fine line between what you can and cannot lodge as a deduction, said Ms Stoykov. For example many people try and claim for the distance travelled from home to work, however it must be for travel from your office to another work-related meeting, she said.

As a general rule, the cost of the daily commute isn’t deductible so enduring that train or car ride is all on you, said Mark Chapman, director of tax communications at H&R Block.

“So far as the ATO is concerned, the daily grind begins when you get to work and ends when you leave, so the time you spend getting to and from work is private in nature and expenses associated with it, such as train fares or petrol, are not claimable,” he said.

But in good news there are exceptions. If you’re required to carry bulky tools or equipment or if you are an “itinerant” worker – someone with no fixed workplace who travels to different work sites every day – you may be able to make claims.

“But expect the ATO to look closely if you claim to fall into one of those exemption,” he warned.

Likewise for your phone expenses, you must make a claim only for work calls, not your entire bill, which would likely include a high percentage of personal calls, Ms Stoykov added.

While the commute to work might be stressful, you can’t necessarily claim it. Picture: iStock

3. Forgetting to keep receipts or records of the expenses

It’s no secret that the ATO can call on you to provide receipts and evidence up to five years from the date you’ve lodged a claim.

“Lodging for an item that does not have an accompanying receipt is a sure-fire way to have a red flag marked against your claim,” warned Ms Stoykov.

“This sounds like a pain, but there are easy ways to keep on top of it throughout the year by using platforms – such as myDeductions for individuals or Hnry for anyone who is self-employed or a contractor – that allow you to take care of all of their financial admin in one place,” she advised.

Documents to put together include proof of work-related expenses, bank interest statements, and rental property income, to name a few.

Just because claims like dry cleaning are standard doesn’t mean you can use them. Picture: iStock.

4. Trying to use a deduction when you didn’t pay for it

A lot of Australians think they are entitled to a ‘standard deduction’ and try to claim for things they never actually paid for, such as dry cleaning, which gets a lot of people audited each year, according to Ms Stoykov.

Be careful of standard deductions if you don’t have anything to support them, warned Greg Travers, head of tax, William Buck.

This includes areas such as the $300 of work-related expenses, $200 of small items and $150 of laundry costs.

“If you claim these, be ready to answer questions from the ATO on how your actually spent the money,” he said.

The Australian Taxation Office has flagged it’s on the lookout for anyone trying to claim hefty working-from-home expenses, while also maintaining or increasing claims for things like car, travel or clothing expenses.

Yet even among these standard claims, there are little-known rules that people could use to their advantage.

Most people know that they are entitled to tax deductions for charitable donations, but it’s not common knowledge that you may have an option of spreading the donation deduction over five years via an election, revealed Davide Costanzo, chairman of the Moore Australia Tax Committee.

5. Claiming personal expenses for rental properties

You cannot try and claim money for times that you used your property yourself, said Ms Stoykov.

“So for example if you usually rent your property but decide to move in for a few months between tenants, you can’t claim for the period you reside there,” she said.

But investment properties often contain tens of thousands of dollars’ worth of tax deductions, according to BMT Tax Depreciation CEO, Bradley Beer.

Tax depreciation is the natural wear and tear of property and assets. It’s one of the highest tax deductions available to property investors who can claim it for up to forty years.

“Inconspicuous rewiring and re-plumbing may also be required for an older property, or when a property has been damaged. These items could produce a total depreciation deduction of $16,000,” he said.

“It’s hidden deductions such as these that can produce valuable deductions in older properties. Even if the improvements were completed by a previous owner, the current owner can still claim them.”