Don't poke the bear at tax time - it will come back to bite you
The Australian Taxation Office (ATO) took a lenient stance last tax season, but don't expect it to do the same this year.
The message from CPA Australia is simple: "Don't poke the bear."
"If you're thinking of playing hide and seek with the ATO, don't expect them to close their eyes and count to 10," says CPA's senior manager of tax policy, Elinor Kasapidis.
"Assume they have full line of sight on your income."
According to Kasapidis, it boils down to three simple principles:
1. If you earned money, you need to report it.
2. If you can't prove an expense, you can't claim it.
3. If you want to make sure you've got it right, see a tax agent.
"Claiming deductions for work expenses is the single biggest area where people go wrong; both by claiming too much or not enough," says Kasapidis.
"The way the tax system works, if you don't claim a deduction, you won't get it. Plenty of people miss out because they didn't know to ask. Don't copy and paste last year's deductions into this year's return; it's another surefire way to poke the bear."
While the ATO will be less lenient than last year, that doesn't mean it's business as usual.
"This is the first full income year in a COVID-environment. We expect many employees' tax returns will include COVID-related items."
Employees who spent time working from home may be entitled to claim a deduction for expenses such as electricity and the internet.
"The ATO's shortcut method is suitable for many taxpayers and will save time and effort."
The shortcut method allows you to simply claim 80 cents for every hour worked over the last financial year.
Other methods may be more suitable for employees who've spent a larger amount on home office expenses, such as furniture and air-conditioning.
"If you are intending on being lazy and just claiming the 80 cents per hours shortcut method, this only equates to a maximum deduction of $1,440 based on the 37.5 hours per week over 48 weeks," says Adrian Raftery from the accounting and tax service Mr Taxman.
"However, if you were to take your actual expenses incurred for phone and internet, computer consumables, stationery and computer equipment and office furniture as well as the heating, cooling and lighting of your office, you probably could potentially claim up to $2,500 to $3,500 depending on your circumstances."
If itemising deductions, Raftery suggests that taxpayers use the ATO's myDeductions app and ensure that they have logs for car, travel and mobile phone use as well as time spent in the home.
"Times are tough during this COVID-19 pandemic, so every dollar saved counts more than ever before."
Investment property has also taken a hit during COVID, and the likelihood that this will continue can continue should trigger some forward planning ahead of the next financial year.
"Negative gearing losses might be quite high this year.
"It might be a good idea to complete a PAYG Withholding Variation form for 2021/22 if these increased losses are prolonged & you are struggling with cash flow especially as the banks are no longer offering mortgage holidays."
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