The ATO has recently adopted a very aggressive strategy to collect more tax revenue. Earlier this year, they sent out hundreds of thousands of letters to taxpayers, warning them that their deductions may have been overstated, and advising to review their claims in order to avoid paying back tax and being penalised in the event of an audit. Many taxpayers saw this letter as a precursor to an audit, despite the letter stating that if the taxpayer believes deductions were claimed correctly, they need not take any further action.
Now they have issued a warning in the pre-filling report for 2017 as follows:
The pre-filling report is a tool used by tax agents to "pre-fill" the tax return with information from the ATO database. One of the items in the pre-filling report is "Deductions reported" in the previous year. This warning message has the consequence of pressuring tax agents (whether intentional or not) into claiming less deductions than the previous financial year, whether or not this is fair for the taxpayer.
This is why it is extremely important to have your tax return prepared by a qualified, professional and experienced tax agent, who knows what you can and cannot claim. If you are a taxpayer with legitimate work-related expenses that have the necessary nexus to employment, and sufficient substantiation, then you do not have to feel intimidated into claiming less deductions than you are entitled to.
It is always important to claim the right amount of deductions, because an audit is costly and stressful, and paying tax back can create a significant financial burden.
Some Tips for getting the most out of your tax return
Take a photo
Whenever you incur a work-related expense, make sure to keep the receipt. Keep in mind that receipts can fade, get lost or destroyed. You should always keep a soft copy somewhere safe. My favourite tip is to take a photo with your phone and email the receipt to yourself; keep the emails in a separate folder called "receipts".
Get it emailed
Have you ever paid for an expense online (such as stationery, insurance or a donation) and had the option to have the receipt emailed to yourself? You should always choose this option! If you don't get a receipt, it's as if the expense never happened. Don't fall into this trap.
Keep a diary
Using your car for work? Keep a logbook! Your trips might be deductible. Trips from home to work are generally not claimable, but can be in certain circumstances. If you want to know whether your trips are allowable, send me an email!
Do you work from home? Even if it's only a few hours on the weekend, and an hour each evening, all those hours add up, and you could be eligible to claim deductions. Keep a diary of your hours working from home, as well as the hours you spend on the internet, separating the work-related hours from personal hours. Do this for 4 weeks, and you have substantiation for claiming home office maintenance and internet use (as well as computer).
If you are a client of mine and would like a template, please contact me for access to the resources page.
Ask for a letter
This is so important - get your employer/manager/supervisor/payroll officer etc to give you a letter, confirming that you are required to incur certain expenses such as self-education and professional development, travel, phone, car, computer etc; and that these expenses were not reimbursed. There is no reason why an employer would not provide this letter, and it is much easier to obtain while you are employed, rather than a couple of years down the track when you no longer work there and are being audited. This letter will be your evidence of nexus to employment, one of the key requirements to claiming a deduction.
Stay tuned for more tax tips, or send me an email if you want me to prepare your tax return!