ATO's Top 10 Tax Myths
By Steven Castelletto
Do you know the Facts?
With the finish line for the 2019 financial year clearly in sight, those that usually sit in the tax refund camp might be eagerly getting together the information necessary to complete their tax return. The prospect of a tax refund can be exciting as it often serves as an annual stimulus package for individuals and families allowing them to buy something nice, put a hole in mortgage and credit card debt, or serve as a healthy top up to their savings to ease future pressures.
The ATO on the other hand are tasked with the job to ensure tax returns are correct and individuals are entitled to the tax deductions they seek. The ATO can question any deductions claimed on your tax return for up to 5 years (7 years for companies). If your tax return is subject to an audit or review, it is a matter of guilty until proven innocent, with the burden of proof placed squarely on your shoulders.
In the quest for the bigger refund for that bigger TV, taxpayers can often fall into the trap of overstating their eligible deductions or not knowing how to substantiate them. Common tax misconceptions often catch taxpayers out if they are ever unlucky enough to fall prey to an ATO audit.
ATO Top 10 tax myths
Myth: Everyone can automatically claim $150 for clothing and laundry, 5000 kilometres for car related expenses, or $300 for work-related expenses, even if they didn’t spend the money
Fact: the record-keeping exemptions provide relief from the need to keep receipts in certain circumstances. However, they are not an automatic entitlement or a “standard deduction” for everyone. While you don’t need receipts for claims under $300 for work related expenses, $150 for laundry and 5000 kilometres, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim.
Myth: I don’t need a receipt, I can just use my bank or credit card statement
Fact: To claim a tax deduction you need to be able to show that you spent the money, what you spent it on, who the supplier was, and when the purchase occurred. Bank or credit card statements usually won’t contain this information. The only time you don’t need these details is if record-keeping exceptions apply.
Myth: I can claim makeup that contains sunscreen if I work outside
Fact: We all like to look good but cosmetics are usually a private expense and the addition of sun protection does not make it tax deductible. However, it may be deductible if the primary purpose of the product is sunscreen (i.e.: it has a high SPF rating), the cosmetic component is incidental, and you were required to wear it because you work outdoors in the sun.
Myth: I can claim my gym membership because I need to be fit for work
Fact: While you might like to keep fit, there are only a very small number of people who can claim gym memberships, such as special operations in the Australian Defence Force. To be eligible, your job would have to depend on you maintaining a very high level of fitness, for which you are regularly tested.
Myth: I can claim all my travel expenses if I add a conference or a few days’ work to my holiday
Fact: If you decide to add a conference or some work to your holiday, or a holiday to your work trip, you must apportion the travel expenses between the private and work-related components.
Myth: I can claim my work clothes because my boss told me to wear a certain colour
Fact: Unless your clothing is a uniform that is unique and distinct to your employer, or protective or occupation-specific clothing that you were required to wear to earn your income you, won’t be able to claim it. Plain clothes, like black pants, are not deductible even if your boss told you to wear them.
Myth: I can claim my whole Netflix or Foxtel subscription because I need to keep up to date for work
Fact: Unless you only use your subscriptions for work purposes, you will have to apportion the cost between business and private usage, and only claim the work-related portion of your expenses. You will also need to be able to show a strong connection between earning your income and the subscription.
Myth: I can claim home-to-work travel because I need to get to work to earn my income
Fact: for most of us, home to work travel is private since your boss doesn’t pay you until you get to work. There are limited circumstances where someone who has to transport bulky equipment can make a claim.
Myth: I’ve got a capped phone plan, so I can claim both business and private phone calls
Fact: Unless you only use your phone for work, you will have to apportion the cost between business and private usage and only claim the work-related portion of your expenses.
Myth: If I use an agent, they will take responsibility for my claims
Fact: Even if you use a tax agent, you are ultimately responsible for ensuring the information in your return, including the deductions you claim, is correct. You cannot transfer that responsibility to your agent so make sure you give them complete and accurate information.