Here are the big mistakes that Australians are making with their tax returns this year and how you can avoid them.
The end of the 2019-20 financial year is upon us. And Australians are getting very into their tax returns this year. So much so that we crashed the Australian Tax Office (ATO) website on 1 July, the very first day that we could lodge our tax returns, with the lodgement page unable to cope with high amounts of traffic.
The Australian Treasurer revealed last weekend that by 9 July, nearly 1 million Australians had lodged their annual tax return.
This means roughly 1 in 25 of us have already lodged our tax return 9 days into the financial year but that number is actually higher when you consider that not all Australians lodge tax returns.
This rush does make sense when you look at what’s happening for Australians right now. We’ve recently entered our first recession in 30 years and as a young person who graduated in the Global Financial Crisis, it feels scary. I can absolutely see why when faced with the fear of what a recession might bring, people want to put in their tax return as soon as possible to gain a tax refund.
Do you remember rushing when you left an assignment to the last minute?
For some, rushing at the last minute can be a form of motivation. What’s also a reality however is that rushing leads to mistakes as you have less time to look through and check what you’ve written thoroughly.
Similarly, the Australian Tax Office (ATO) has already noticed that many of those who rushed to complete their tax returns at the earliest opportunity are making mistakes. In an interview with the Herald Sun last weekend, the ATO’s assistant commissioner, Karen Foat shared the 5 mistakes that the ATO is seeing Australians make with their tax returns this year.
While it’s important to highlight what not to do, at Money Bites we also believe it showing people what they SHOULD do. We’ve listed the 5 mistakes that appeared in that Herald Sun article but also went a step further and looked into ATO guidance about what you should do so that you can avoid these mistakes.
So that you can get your tax return right this year, here are the 5 mistakes Australians are making with their taxes – and how to avoid them:
1. Leaving out income for the 2019-20 financial year
While you might know how much you earned this year, your employer provides this to the ATO via a Pay As You Go (PAYG) summary. The PAYG summary shows how income your employer provided to you during the financial year as well as how much tax they withheld during the year.
- How to fix it: You can avoid this becoming an issue by waiting until your PAYG summary from your employer is finalised before you lodge your tax return. While you may want to lodge your tax return as soon as you can, your employer has until 31 July to finalise this information.
2. Not updating your bank details
Many Australians assume that your bank details will automatically update year to year. Unfortunately, the ATO is not a mind reader and you need to check your bank details each year, particularly if a tax refund is due.
- How to fix it: If you’ve changed bank details since you last tax return, take the initiative to update your financial institution and ensure this is accurate. The quickest way to do this is to jump online and update your myGov account, with instructions on how to do this here.
3. Incorrectly using the 80 cents per hour shortcut rule
This mistake is one you need to watch if you worked from home this year. Many of us have had to work from home during COVID-19, some for the first time. Typically, if you’re an employee working from home, you’re able to claim for expenses relating to this work including electricity and internet or phone expenses when this is used for work.
This year, the ATO introduced a shortcut method to simplify the deduction for working from home, to assist those who don’t typically do this. Under this shortcut, you can claim 80 cents per hour for each hour you work from home. We all love a good shortcut but the ATO has flagged that people are still using this method incorrectly.
- How to fix it: You can only use the shortcut method from 1 March to 30 June of the last tax year so any work you undertook from home before then will have to use the ATO’s normal deduction methods. It also needs to be work at which you were fully employed so not just taking the odd call, incurring additional expenses working from home such as heating your workspace and record how many hours you worked from home to then claim a correct deduction of 80 cents for each hour you worked from home.
4. Copying last year’s return
A tax return is an opportunity to declare how much you earned and explain how much money you’ve spent directly related to earning your income. This is your income and deductions which will change each year. One issue the ATO is noticing is that some people are just hitting copy and paste on their tax return, despite their circumstances likely changing each year.
- How to fix it: Just don’t copy and paste your tax return. You need to keep track of your income for the year and your work-related expenses via receipts or invoices. Those documents should be stored for 5 years in case the ATO asks you to prove your claims so we recommend you get a good filing system.
5. Claiming tea and coffee as work deductions
This mistake came as a shock because I would never even think to claim a deduction for tea and coffee. Yes many of us rely on coffee to get in the right mindset for work. But according to the ATO, this tax year people have been claiming tea or coffee which they say was 100 percent used for work when it wasn’t.
- How to fix it: Check out the ATO’s list of deductions you can claim. These deductions are items directly related to earning your income, which is why most meal costs are not expenses you can claim. You must have spent the money yourself rather than being reimbursed, it needs to be related to your job and you be able to prove your spending such as with a receipt.
So should you lodge your tax return right now?
You have until October 31 to lodge your tax return if you’re doing your tax return yourself. If you want to use a tax agent to help you, you need to engage them before this date. If you’re not quite ready, take the time now to get your tax documents sorted and lodge your tax return confident that you’ve got it right.
Read more: Let’s talk about tax