Tax Time – Tips For Getting Your Individual Tax Return Right

Benjamin Franklin once said there were only two things certain in life: death and taxes.

Tax is the money we pay to Australia’s Governments in return for public goods and services we use every day including health and community services, public education and infrastructure (roads and railways) among many others. 

I think of tax as the cost of entry to live in our wonderful country as it contributes to the health and wellbeing of all Australians. 
Why You Need To Do An Individual Tax Return?

If you generate income, you will generally pay income tax on that money. Income tax is paid throughout the financial year as you earn income. Your employer will deduct a certain amount of tax from each pay period and pass it onto the Australian Tax Office (ATO). The ATO does this Pay As You Go (PAYG) withholding so you don’t have a big tax bill at the end of the year (Or, in my opinion, TO BE SURE YOU HAVEN’T SPENT THE MONEY!).

By doing your tax return, the ATO will determine whether you will get a tax refund (paid too much tax throughout the year) or need to pay more tax (paid too little tax throughout the year). 

What Information Will You Need To Complete Your Individual Tax Return?

Here is a checklist of the information/documents you’ll need to complete your tax return.

Assessable Income:

Assessable income is income that you must declare and pay tax on. This includes:

  • Employment income (payment summaries from your employer).
  • Government payments (Centrelink summaries). 
  • Investment Income: bank interest (bank statements), shares, unit trusts or managed funds statements (tax statements for information on dividends or distributions you’ve received) as well as capitals gains/losses on bought and sold investments).
  • Rental property records (annual tax statement that details income and expenses from your property manager).
  • Private health insurance policy statement.
  • Any business, partnership, trust or foreign income.
  • Income from the sharing economy (Uber or Air BnB).
  • Other income including compensation and insurance payments, discounted shares under employee share schemes, some prizes and awards.
Allowable Deductions: 

You’re entitled to claim deductions for some expenses, most of which are directly related to earning your income (work-related expenses). A deduction reduces your taxable income, and means you pay less tax.

Here are some simple rules about allowable deductions:

  • You must claim the deduction in the same financial year you made the purchase.
  • You must have spent the money yourself and not been reimbursed.
  • You must have written evidence of your purchase, such as a receipt, bank statement or diary entry.
  • It must be directly related to earning your income i.e. related to your job.

When your expenses meet these criteria, there are many different types of deductions that can be claimed. Check out the ATO’s deductions you can claim and deductions for specific industries and occupations webpages for more details. 

Here are some deductions you usually can’t claim on your tax return.

  • Private travel – including any personal travel portion of work-related travel e.g. travel between home and work.
  • Car expenses – including that have been salary sacrificed or you have been reimbursed for. 
  • Meal expenses – unless you were required to work away from home overnight.
  • Everyday clothes – you bought to wear to work (e.g. a suit or black pants), even if your employer requires you to wear them.
  • Self-education expenses – where there is no direct connection to your current employment.
  • Phone or internet expenses that relate to private use.
Tax Offsets: 

Tax offsets directly reduce that amount of tax you have to pay. You can check out if you are eligible for a tax offset on the ATO’s offsets and rebates webpage. 

How To Lodge Your Individual Tax Return

You can lodge your return online using myTax. You need a myGov account linked to the ATO to lodge online. 

TIP: If you wait until mid-August the ATO will pre-fill most of the information from employers, banks, government agencies, and other third parties into your tax return. All you will have to do is double-check the information is correct, enter any deductions you have and hit submit. 

You can also fill out a paper form return from the ATO if you are more old school.

If you are lodging your own tax return, you have until 31 October 2017 to lodge it. If you decide to use a registered tax agent (starting cost at around $150 and can go up depending on the complexity of the return), or are using a different agent to last year, you will need to contact them before 31 October to arrange completion of the return. 

Final Thoughts

Should you look to evade tax? NO – its illegal.

Should we look to minimise tax? Sure. Claim the right amount deductions. No more, No less.

The ATO is focused on helping taxpayers get their deductions accurate, but they’re also on the lookout for any red flags that identify people who are doing the incorrect/illegal thing.

Whichever way you choose to lodge your tax return (by yourself or through a registered tax agent), remember you are responsible for the claims you make, so make sure your deductions are genuine and you have included all your assessable income before you or your agent lodges your return.

Information thanks to the Government’s ATO and MoneySmart websites.

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