Tax Time Q&A: Your tax FAQs answered

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We recently put the call out to our Facebook followers asking: “What are your tax time questions?”

To get the right information to you, we went out and asked two professional tax accountants from True Local:

for their take on your most burning questions for this tax season.

Here is what they had to say:

Do I need receipts to claim tax deductions for work-related expenses?

Both experts agree that you should to be safe – although there are some purchases where you won’t have to. Katrina suggests keeping receipts for any purchases over $300, while Warren says that anything under $75 isn’t essential (and the Australian Tax Office will accept an electronic entry on your bank statement anyway).

What are the most common mistakes people make when lodging a tax claim?

For Warren, the most common mistake is that people listen to their friends for tax advice. If something worked for your mate it doesn’t necessarily mean it will work for your own situation, so you’ll need to do your own research or chat with a pro.

Katrina suggests that there are a number of common tax mistakes that Aussies make. For example, people don’t always keep receipts (or lose them), and they sometimes try double dipping on claims by getting reimbursed by an employer and then claiming on the same item again.

Additionally, Aussies are notorious for overestimating what they can claim on in terms of electricity, phone use, and even business trips. For example, how much of your phone use is personal vs private? How much of that business trip was spent doing business? You’ll need to keep accurate records to get these parts right.

What is the best way to find out what I can claim?

Both Katrina and Warren suggest making a beeline for the ATO website. It’s got plenty of information and you can use the small business benchmarks tool to see what everyone else is charging in terms of labour costs and give you an idea of whether or not you’re roughly around standard. If you’re not, be prepared to have a good reason why your business is different.

Or, as Warren adds, simply hire a professional. Sure it’ll cost you, but it’s an easy way to get exactly what you’re entitled to.

I made a mistake on my tax form. What should I do?

Apply for an amendment to the tax department and give them a reason for the mistake. Both professionals agree on this route, and suggest making any changes ASAP, as you only have two years to apply for a change.

I donated to several charities last year. Can I claim a tax deduction?

Absolutely.

“As long as the charity is a deductible gift recipient,” explains Warren. You’ll need to check out their ABN to find out, so head over to the Australian Business Register. Keep in mind that you’ll need a receipt!

What are your tups on getting the best possible tax return?

Here are Warren’s golden rules for the best return:

  • Hire a professional
  • Keep your records (no receipt means no deduction)
  • Don’t take advice from unqualified people
  • If you talk to the ATO, be nice, and they’ll be nice to you

I have a job that allows me to work from home a few times a week, but there is no set schedule for it. Will this impact my taxes? Do I need to keep records?

If you have a strong link between working at home and your office job, AND you keep a diary of the hours you worked from home, you may be able to apply for a small deduction on your electricity and other home bills.

What kinds of things can trigger an ATO audit?

“Basically, standing out in some very clear way from other people,” says Katrina. You might have a perfectly reasonable explanation for it, but you’ll need to have it ready should the ATO spot that you’re outside the norm.

Warren adds that in Australia, aside from excessive work-related deductions, it can often be tip-offs from vindictive exes.

Why do I owe the ATO when I pay tax every month?

There are a number of reasons you might still owe money on your tax bill, such as:

  • Your original TFN declaration was incorrect
  • You might have investment income where tax hasn’t been paid
  • Your employer could have messed up
  • You may be positively gearing a property
  • You might have had inheritance that you need to pay tax on
  • You may have a second job to pay tax on

I have a small business, and I’m thinking of hiring contractors. Are there tax benefits to hiring contractors over employees, or vice-versa?

There is no difference if you look at it directly, as both instances would be tax deductable, according to Warren. However, if a contractor is operating a personal services business you do not have to pay superannuation. A personal services business means that they are paid for an outcome rather than on a time basis. They provide their own tools and equipment, and if they mess up they won’t get paid for fixing it. These three things must apply to be considered a personal services business.

Last tip: pay attention to the details, and if you need more specific tax advice, contact Warren at Taxwise Australia or Katrina at Figure It Out.

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