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Five common mistakes Australians make with their tax returns

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Tax season is here. Like most people, you probably want to get it over and done with as quickly, and painlessly, as possible. But before you rush to lodge your return, make sure you haven’t made these five common mistakes.

1. Leaving out income for the 2020-21 financial year

Due to the COVID-19 pandemic, 2020-21 was a tumultuous year. Some people lost jobs while others switched to part-time or freelance work.

If your employment was erratic, be careful not to forget or leave anything out. Because of the impact COVID had on employment, the Australian Taxation Office (ATO) may look more closely at income declared, particularly gig economy workers.

2. Copy-pasting last year’s tax return

If nothing much changed in the last year, you may want to do a quick copy-and-paste job, taking the information from last year’s return and dumping it into this year’s tax return.

But, look back at the year. Did you receive a performance bonus, salary increase, or any other perks? Did any additional income come your way, like the sale of a house or car, investment interest or dividends, or lottery winnings?

3. Claiming deductions for personal expenses

It can be tempting to exaggerate claims or sneak in claims for personal expenses. Beware – the ATO is aware of all the tricks, so it’s best to be honest.

If you shifted to working from home during the pandemic, certain work-from-home expenses can be claimed, but the ATO will scrutinise these carefully.

What you can claim:

  • A portion of your electricity, internet and phone expenses related to business use. For the 2020-21 tax year, you can use the shortcut method for running costs, i.e. 80 cents for each hour worked.
  • Computer consumables and stationery.
  • Home office equipment and furniture.
  • Cleaning costs for a dedicated office area.

What you can’t claim:

  • Refreshments like coffee, tea, milk in lieu of your employer providing it at the office.
  • Items provided by your employer or items for which your employer reimbursed you.
  • A portion of your rent, mortgage interest, water and rates.

4. Forgetting to keep records of expenses

It’s easy to inadvertently toss receipts away and forget to keep records. This can be a costly mistake if the ATO decides to audit your tax return and requests proof of expenses. Without invoices and receipts, your claim will be denied and you may end up being penalised.

5. Claiming personal expenses for rental properties

The ATO also looks closely at rental property claims to spot some common illegitimate claims such as:

  • Claiming for expenses on a rental property if you spent part of the year living in it or for a holiday home when you vacationed there. As the ATO explains, you can only claim expenses for rental properties during the period it was occupied by a tenant or “genuinely available for rent”.
  • Claiming for expenses incurred while travelling to your investment property. As the ATO explains, you can’t claim any travel-related deductions unless you’re “in the business of letting rental properties” – and, generally, “owning one or several rental properties will not be considered being in the business of letting rental properties”.

Making mistakes on your tax return could slow down the returns process or, worse, result in penalties if you’re found guilty of misleading information or false claims. If you’re unsure of what deductions to claim, it may be best to hire a tax professional who can help you complete your return correctly.

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