• ATO guide to the 5 most common Tax Time mistakes

At tax time 2018 Australian Taxation Office (ATO) has profiled the five most common mistakes and the personalities most likely to have tax time troubles.

It’s often simple mistakes and misunderstandings that trip people up. “While we know most people want to get it right, ATO audits and reviews show that there are five main areas where taxpayers are most likely to get it wrong.”

The top five mistakes include taxpayers who are:

  • leaving out some of their income – maybe forgetting a temp job or money earned from the sharing economy
  • claiming deductions for personal expenses – home to work travel, normal clothes or personal phone calls
  • forgetting to keep receipts or records of their expenses
  • claiming for something they never paid for – often because they think everyone is entitled to a ‘standard deduction’
  • claiming personal expenses for rental properties – either claiming deductions for times when they are using their property themselves or are claiming interest on loans used to buy personal assets like a car or boat.

Many of the mistakes are avoidable and there are a few things taxpayers can do to make sure their tax time experience is stress-free.

“Know what you can legitimately claim. There are three golden rules for work-related expenses. You must have spent the money yourself and not have been reimbursed, it must be directly related to earning your income, and you must have a record to prove it.

“This tax time ATO will be paying close attention to claims for private expenses like home to work travel, plain clothes, and private phone calls. ATO will also be paying attention to people who are claiming standard deductions for expenses they never paid for.”

Tax can sometimes be tricky, but it’s not tricky to keep good records.

“Around half of the adjustments ATO make are because the taxpayer had no records, or they were poor quality. Yet it’s so easy to keep your records, using the myDeductions tool in the ATO app. Just take a photo, record a few details and then at the end of the year upload the information to your agent.

Another tip is to include all your income. “A temp job, cash jobs, capital gains on cryptocurrency, or money earned from the sharing economy is all income that must be declared. ATO is constantly improving their data matching tools and even a one-off payment may be enough to raise a red flag.

Some people lodge early because they want their refund, and that’s fair enough. But ATO amend returns for thousands of taxpayers that leave out some of their income. This can delay your refund or even see you owing money to the ATO. If you wait until mid-August, ATO will have pre-filled most of your income information for you, to help you get it right to start with.

Pre-fill is available whether you choose to lodge online with myTax, or with a registered tax agent.

For those intending to push the boundaries, or perhaps fudge some parts of their return, the ATO has you in its sights.

Finally, if you make a mistake, don’t panic.

ATO know people sometimes make mistakes or forget to include something on their return. If you’re in that situation, try to fix it as soon as you can to minimise any interest and penalties. Contact your agent and lodge an amendment online.

Whether you use a tax agent or lodge it yourself, you are responsible for the claims you make. Take the time to check your deductions are legitimate and you have listed all your income before lodging.

 

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  • Applying GST to low value imported goods

From 1 July 2018, businesses that sell goods into Australia and meet the goods and services (GST) registration threshold of A$75,000 will need to register and pay GST on goods that are:

  • less than A$1,000
  • imported into Australia
  • not GST-free items (for example, items of food).

This change also means Australian-based retailers that drop-ship goods will need to charge GST from 1 July 2018.

Those who buy low value imported goods should not be charged GST if they:

  • are registered for GST
  • import the low value goods for business use in Australia
  • provide their Australian business number (ABN) to the supplier, along with a statement declaring they are registered for GST.

If you are incorrectly charged GST, you should initially seek a refund from the supplier. In some situations, you may be entitled to claim a GST credit instead.

When claiming a GST credit, you should have a valid tax invoice. Only receipts which contain an ABN are valid tax invoices – even if they apply GST. Some overseas suppliers may be registered in the simplified GST system and have an Australian Taxation Office reference number (ARN) instead of an ABN.

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  • Income tax return

What you need to report and how you lodge your annual tax return for your business depends on your type of business entity.

  • Sole traders

If you operate your business as a sole trader, you must lodge a tax return even if your income is below the tax-free threshold. This includes:

  • tax return for individuals including the supplementary section
  • business and professional items schedule for individuals.

In your return, report:

  • your business income less the business deductions you can claim
  • other income, such as salary and wages (from a payment summary), dividends and rental income, less any deductions against this income.

If you have paid PAYG instalments during the income year, these will be automatically credit to you in your assessment.

  • Partnerships and partners

If you operate your business as a partnership, the partnership lodges a partnership tax return, reporting the partnership’s net income (assessable income less allowable expenses and deductions).

As an individual partner, you report on your individual tax return:

  • your share of any partnership net income or loss
  • any other assessable income, such as salary and wages (shown on a payment summary), dividends and rental income.

The partnership doesn’t pay income tax on the income it earns. Instead, you and each of the partners pay tax on the share of net partnership income you receive.

  • Trusts and beneficiaries

If you operate your business as a trust:

  • the trustee lodges a trust tax return, and
  • each trust beneficiary lodges an individual tax return.

The trust reports its net income or loss. This is the trust’s income less expenses and deductions.

As a trust beneficiary, you report on your individual tax return:

  • any income you receive from the trust
  • any other assessable income, such as salary and wages (shown on a payment summary), dividends and rental income.

  • Companies

If you operate your business as a company, you need to lodge a company tax return.

The company reports its taxable income, tax offsets and credits, PAYG instalments and the amount of tax it is liable to pay on that income or the amount that is refundable.

The company’s income is separate from your personal income.

  • Avoid being incorrectly charged GST from overseas

GST on low value goods imported into Australia commences from 1 July 2018.

Low value imported goods are physical goods – excluding tobacco, tobacco products and alcoholic beverages – with a customs value of A$1,000 or less.

If you’re an Australian GST-registered business, you should not be charged GST when purchasing these goods for your business use, if you provide your supplier with both:

  • your Australian business number (ABN)
  • a statement that you are registered for GST.

If you’re charged GST incorrectly, you should speak to your supplier about a refund.

Note that not all receipts that have GST applied will be tax invoices. To be considered a tax invoice, they will need to contain an ABN. Overseas suppliers may be registered in the simplified GST system and have an ATO reference number (ARN) instead of an ABN.

 

 

Source: ATO website