Archive for 'Tax'
As tax time continues, the ATO has announced the top misconceptions many individuals make when completing their claims for tax deductions.
Four popular tax misunderstandings include:
1. Individuals can give credit card statements as proof of claim
Debunked: When making a claim, individuals must be able to show they spent the money, what the money was spent on, the supplier and the date the purchase was made unless record-keeping exceptions apply.
2. Individuals can automatically claim $150 for clothing and laundry, under $300 for work-related expenses or 5000 kilometres for car-related expenses
Debunked: While taxpayers are not required to provide receipts relating to the above in certain circumstances, these are not ‘standard deductions’ everyone can just claim. An individual can only claim if they have spent the money, and the expense relates to earning their income. They must also be able to explain how they calculated the amount.
3. Individuals can claim home-to-work travel
Debunked: Individuals can only claim home-to-work travel in limited situations, i.e., in some circumstances where they must transport bulky equipment.
4. Individuals can claim work clothes when required to wear a particular colour
Debunked: Individuals can only claim a deduction for work clothes if they are required to purchase a uniform that is unique and distinct to their employer or because they are required to buy occupation-specific or protective clothing to earn their income.
The Tax Office has confirmed the rate for work-related car expenses will rise to 68 cents per kilometre for the income year beginning 1 July 2018.
The new rate will affect those eligible individuals who elect the cents per kilometre method when calculating the income tax deductions for their work-related car expenses for the 2018-19 income year. This rate also applies to the following income years until the Commissioner of Taxation deems it should be varied (these rates are reviewed each year).
Taxpayers working out their car expenses for the 2015-16 year, 2016-17 year and the 2017-18 year should remember that the previous rate of 66 cents per kilometre still applies to their calculations.
When selecting the cents per kilometre method, eligible individuals:
– are not required to supply the ATO with written evidence of how many kilometres they have travelled;
– may need to show how they worked out their business kilometres calculations;
– cannot claim more than 5,000 business kilometres per car;
– and cannot make a separate claim for depreciation of the car’s value.
It is also important to note that the amount will take into account all the vehicle running expenses.
The ATO has released its latest findings on the tax gap for Australian individuals. The estimated gap in 2014-15 is approximately $8.7 billion or 6.4 per cent.
The income gap is an estimate of the difference between the tax the ATO collects and the amount that would have been collected if each taxpayer was fully complaint.
Over 93 per cent of income tax received from individuals not in business is paid voluntarily or with little intervention from the ATO. There are around 9.6 million individuals who are not in business and lodge tax returns. These taxpayers earn their income from salary and wages and investments.
The tax gap is primarily driven by incorrectly claimed work-related expenses. The ATO says the most common mistakes include:
– Claiming deductions where there is no connection to income
– Claims for private expenses
– No records to show that an expense was incurred.
Other areas of concern include high rates of incorrect claims for rental property expenses and non-reporting of cash wages.
The ATO is warning taxpayers to take care with that they claim, because all of those little amounts add up.
The Tax Office uses data and technology to identify outliers, as well as tailoring advice and guidance products, auto-correct mistakes, streamline reporting and substantiation processes, access third party data to verify claims and provide pre-fill information in tax returns.
The Australian Tax Office (ATO) is reminding individuals to remain vigilant against any scams that may pop up this year around tax time.
With over 37,000 scam attempts reported to the ATO this time, last year, individuals need to be wary of scam artists looking to trick taxpayers into either paying for fake debts or giving away their personal details.
Common scams include:
– The ‘fake tax debt’ phone scam
– ‘Fake refund’
– ‘Refund for a fee’
– Email and SMS contact – i.e., asking to click a link, download a file or open an attachment.
Avoid being caught out in a tax-related scam by following these simple measures:
Protect your personal details
Scammers can use an individual’s personal information (i.e., tax file number, full name, date of birth or passwords) to impersonate them. Protect your personal details by storing them in a safe and secure location.
Use correct payment methods
To avoid paying a scam artist for a false debt to a non-ATO related account, make sure you are aware of the proper avenues for paying legitimate debts to the Tax Office.
Avoid oversharing on social media
Scammers may also try to use any personal information you have published on social media sites to steal your identity.
Be cautious when receiving requests for personal details
Should you receive a request to confirm or clarify your personal information, it is always best to contact the ATO to check if the contact is valid or part of a scam.
From 1 July 2018, the Tax Office is advising Australians that if they find an error in their tax return or activity statement they will not incur a penalty but will advise of the error and how to get it right next time.
Penalty relief will only apply to eligible taxpayers or entities (i.e., turnover of less than $10 million) every three years.
These may include:
– Small businesses
– Self-managed super funds (SMSFs)
– Not-for-profit organisations
Eligible individuals will only be given penalty relief on their tax return or activity statement if they make an inadvertent error because they either:
– took a position on income tax that is not reasonably arguable, or
– failed to take reasonable care
The ATO will not provide penalty relief when individuals have (in the past three years):
Received penalty relief
– Avoided tax payment or committed fraud
– Accrued taxation debts with no intention of being able to pay (i.e., phoenix activity)
– Previously penalised for reckless or intentional disregard of the law
– Participated in the management or control of another entity which has evaded tax.
Individuals can not apply for penalty relief. The ATO is reminding individuals that they will provide relief during an audit should it apply.
Penalty relief will not be applied to:
– Wealthy individuals and their businesses
– Associates of wealthy individuals (that may be deemed a small business entity in their own right)
– Public groups, significant global entities and associates
Penalty relief will also not be applied to certain taxes, i.e., fringe benefits tax (FBT) or super guarantee (SG).
Tax Time is now upon us, with the ATO Assistant Commissioner announcing the top five mistakes commonly made when Australians complete their annual tax returns.
Common mistakes some taxpayers are making include:
– Leaving out a portion of their earnings, i.e., forgetting to include a job – income from a temp job, or income earned from the sharing economy.
– Claiming personal costs for rental properties, i.e., claiming deductions for periods when they were using the property or claiming interest on loans used to buy personal assets (a car or a boat).
– Making claims for expenses unrelated to their employment, i.e., personal phone calls, work to home commute or buying normal clothes.
– Claims for things they have not paid for.
– Not holding onto receipts or keeping insufficient records of their expenses to validate their claims.
To avoid making common errors, the Tax Office is reminding individuals to:
– Remain up-to-date with what you can and can not claim.
– Keep detailed records.
– Ensure you declare all your employment earnings.
The Personal Income Tax Plan announced as part of this year’s Federal Budget has been passed by Parliament.
The plan introduces:
– a new low and middle-income tax offset to reduce the tax payable by low and middle-income earners in the 2018-19, 2019-20, 2020-2021 and 2021-2022 income years
– a new low-income tax offset from the 2022-23 income year
– changes to income tax rate thresholds in the 2018-19, 2022-2023 and 2024-2025 income years
Income tax rate thresholds for the relevant income years are as follows:
2018-19, 2019-20, 2020-21 and 2021-22 income years: Increase the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000.
2022-23 and 2023-24 income years: Increase the top threshold of the 19 per cent tax bracket from $37,000 to $41,000. Increase the top threshold of the 32.5 per cent bracket from $90,000 to $120,000.
2024-25 income year onwards: Increase the top threshold of the 32.5 per cent tax bracket from $120,000 to $200,000.
The Australian Tax Office (ATO) is cracking down on claims for work-related clothing and laundry expenses this tax time.
Last year total claims for work-related clothing and laundry expenses totalled nearly $1.8 billion. The ATO has acknowledged that many of these claims are legitimate. However, it is unlikely that half of all taxpayers would have been required to wear uniforms, occupation-specific clothing or protective clothing.
The Tax Office is in the view that many taxpayers are either making mistakes or deliberately over-claiming. Common mistakes that are observed include:
– Claiming for something without having spent the money
– Not being able to explain the basis for how the claim was calculated
– Claiming ineligible clothing (eligible clothing is occupation-specific, protective or uniform)
Another concern facing the ATO is the number of claims which totalled exactly $150. This amount is the threshold that requires taxpayers to keep detailed records. The ATO is reminding taxpayers the $150 limit is not an automatic entitlement for everyone; it is in place to reduce recordkeeping burden.
Normal clothing is another deduction under scrutiny. Claiming for normal clothing such as a suit or black pants is not legitimate, even if you only wear it to work, or your employer requires you to wear a particular colour and so on.
The ATO uses sophisticated technology to analyse claims and compare them to other taxpayers in similar occupations and earning similar income.
If a taxpayer cannot substantiate their claim, they should prepare to be refused and potentially face a penalty for failing to take reasonable care when submitting their return.
Overseas businesses that meet the GST registration threshold (A$75,000) will be required to charge GST on goods purchased from the 1 July 2018.
Specifically, GST will be charged on goods that are:
- less than A$1,000 (low-value);
- not GST-free (i.e., alcohol or tobacco products);
- and imported into Australia.
Individuals who purchase low-value goods (which they import) will be required to pay GST if they are not registered for GST or importing goods for personal use (even if they are GST registered).
However, individuals can avoid paying GST if they are:
- registered for GST;
- import low-value goods for business use in Australia;
- and provide their ABN to the supplier and a statement that they are GST registered.
Individuals charged GST incorrectly will need to contact the supplier to advise them they are registered for GST, and need to request a refund.
With the end of the financial year fast approaching, preparing ahead will help to take off the pressure of running your business and organising your tax affairs this tax season.
Business owners can benefit from gathering and sorting their records now, including cash, EFTPOS, bank statements, credit or debit card transactions that relate to sales and other business income.
Records of expenses that can be claimed as business deductions, such as operating expenses, business travel, staff wages and contractor expenses should also be compiled.
For those who have changed over their record keeping software in the past year, now is a good time to check all the information has transferred over correctly.
Sole traders are reminded to lodge an annual return even if their income is below the tax-free threshold. Those that lodge PAYG instalments would benefit from lodging activity statements and paying all PAYG instalments before lodging their return so their income tax assessment takes into account the instalments paid through the year.