A ‘standard’ deduction? No such thing, ATO warns ahead of tax time
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A ‘standard’ deduction? No such thing, ATO warns ahead of tax time

The most common myth that leads to errors being made at tax time is that people think they are entitled to automatic or standard tax deductions, according to the tax office.

Assistant commissioner Kath Anderson spoke to Fairfax Media in the lead-up to the end of the financial year about the misconceptions and mistakes the Australian Taxation Office is trying to bust to stop taxpayers overclaiming.

Tax time is coming.

Tax time is coming.

Photo: Louie Douvis

Ms Anderson said the agency would undertake random audits and would continue to data-match information with third-party sources. She said in total, the ATO expects to contact over a million taxpayers this year.

Each year, about 10 million individuals lodge tax returns, which the ATO scrutinises by matching more than 650 million pieces of data.

In 2016-17, work-related expenses accounted for about 76 per cent of deductions for individuals (about $23 billion), its annual report said, but some individuals commonly overclaimed rental and work-related expenses. To deal with this, the agency undertook 762,000 compliance activities and raised tax liabilities of $893.8 million.

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Ms Anderson said in most cases, people needed to keep receipts or proof of purchase.

While there were some exemptions for receipts to ease the record-keeping burden - for example the law does allow taxpayers to claim up to $300 in work-related expenses without a receipt - people still needed to substantiate their claims, prove they were work related and apportion them properly.

“People think that they have an entitlement even though they have not spent the money,” Ms Anderson said. “You have to have still spent the money. It has to be related to earning your income, and you have to be able to show us how you calculated the claim.”

Ms Anderson also urged people self-lodging to use the myDeductions app for record keeping, and to wait until mid-August to file their tax returns to minimise the chance of pre-filling error mistakes.

Car expense claims

In 2016-17, 3.75 million taxpayers claimed $8.8 billion in work-related car expense claims. The biggest mistake: the up-to-5000 kilometre written record-keeping exemption did not mean people could claim the full amount if they did not travel that many kilometres specifically for work.

About 870,000 people claimed exactly 5000 kilometres last year, Ms Anderson said. “Some people think they can claim because they might have stopped into the post office on the way home [from work],” Ms Anderson said.

In 2016-17, 3.75 million taxpayers claimed $8.8 billion in work-related car expense claims.

In 2016-17, 3.75 million taxpayers claimed $8.8 billion in work-related car expense claims.

Photo: Andrew Quilty

Mobile phones and internet

In 2016-17, 6.7 million taxpayers claimed a record $7.9 billion in "other work-related expenses", of which work-related mobile phone and internet expenses were a big part. They may also include home office expenses, union fees, overtime meals and tools and equipment.

The biggest mistake: “People are claiming their entire mobile phone and internet bill even though only a portion of it is work-related," Ms Anderson said.

Home office

Ms Anderson said people were claiming “working” out of their home when they were not incurring an additional expense for doing so, for items such as gas and electricity bills.

A big mistake: “What we’re seeing is people working at the kitchen bench or perhaps sitting in the lounge room using their computer at night while they’re potentially watching TV," she said.

Clothing and laundry

Almost half of all taxpayers (about 6 million people) claimed they were required to wear uniforms, protective clothing or occupation-specific clothing totalling about $1.8 billion in 2016-17.

The biggest mistake: "People claiming normal clothes like black pants or a white shirt,” Ms Anderson said.

The law allows people to claim up to $150 without a receipt for the costs of washing, drying and ironing eligible work clothes.

The biggest myth: "People thinking they are entitled to that flat $150 regardless of whether or not they have a uniform or occupation-specific clothing," Ms Anderson said.

Meals, accommodation and travel

Ms Anderson said work-related travel expenses such as meals and accommodation would be a big focus this year.

“In particular, people who are travelling to a conference but the conference is incidental to private travel,” she said.

Work-related travel expenses such as meals and accommodation will be a big focus this year.

Work-related travel expenses such as meals and accommodation will be a big focus this year.

Photo: Tamara Voninski

Self education

The biggest issue here, Ms Anderson said, was people claiming the cost of courses that were designed to get them a promotion or advance their career.

“They are not deductible because there is not a direct link to their current income-earning activity,” she said.

Self-education expense deductions must have a direct link to a person's current income-earning activity.

Self-education expense deductions must have a direct link to a person's current income-earning activity.

Photo: Supplied

Holiday rentals/rental deductions

In the 2016 income year, about 2 million taxpayers collectively reported gross rental income of $42.1 billion and claimed total rental expenses amounting to $45.6 billion.

Ms Anderson said a common issue was people claiming rental deductions when the property was not genuinely available for rent.

Another was people claiming interest on loans that had been secured against the rental property but were used to buy assets of a personal nature, such as cars and boats.

A common issue is people claiming rental deductions when the property is not genuinely available for rent.

A common issue is people claiming rental deductions when the property is not genuinely available for rent.

Photo: Jessica Shapiro

Cryptocurrencies like Bitcoin

Last year, the estimated total value of digital currency trading in Australia was about $5.9 billion, according to joint research by the Australian Digital Commerce Association (ADCA) and Accenture based on data from seven Australian digital currency exchanges.

Ms Anderson said while not everyone trading in the currency would be making gains, and in fact some would make a loss, cryptocurrency was considered a type of asset like a property on which people might have to pay capital gains tax (CGT).

People therefore needed to keep detailed records, noting the date and time of each transaction, what it was for and the other party involved.

Cryptocurrency is considered a type of asset like a property that people may have to pay capital gains tax (CGT) on.

Cryptocurrency is considered a type of asset like a property that people may have to pay capital gains tax (CGT) on.

Photo: Chicago Tribune

Ride-sharing services like Uber

The ATO had contacted about 140,000 drivers for ride-sharing services such as Uber since the start of 2016 to remind them they needed to register for GST.

There were about 70,000 active drivers across the ride-sharing platforms and about 75 per cent were registered for GST at the moment, Ms Anderson said.

Those who weren't might get backdated for registration and be liable to pay the outstanding GST amount, she said.

Other sharing-economy platforms like Airbnb

People who occasionally rented out their home, or a room in a home, on platforms like Airbnb still needed to declare income, Ms Anderson said, and there might also be CGT implications.

The same applied for people making money by doing odd jobs via platforms such as Freelancer – every dollar of income needed to be declared.