According to the ATO, the top 5 mistakes are:
- Leaving out income, either deliberately or inadvertently. This often includes income from casual or temporary work and money earned though the sharing economy;
- Claiming deductions for personal expenses which cannot be claimed even though they may have some remote connection with work. This would include travel from home to work, in respect of which there is much case law to indicate that such expenses cannot be claimed; normal clothes, which would not qualify as uniforms which can, in certain circumstances, be claimed; and phone calls made that relate to their personal affairs, albeit on a phone which is also used for work related purposes. In that latter case, an apportionment on a reasonable basis is almost certain to be accepted by the ATO;
- Not having records of an appropriate kind to substantiate expenses which exceed the minimum amount for which expenses must be substantiated. This can include not obtaining an appropriate receipt or record of the expense, or having obtained such a receipt or record and not keeping them appropriately in case they are asked to be produced at a later time;
- Claiming an amount for something which was never paid. I know from feedback we have received that there are some (fortunately few) tax practitioners who believe that everyone is entitled to a standard deduction, usually in the amount of $300. Let me not mince my words here – this is wrong!! In relation to an expense where substantiation is not required, because the amount in question in total is less than $300, it does not mean that a taxpayer can never be asked to prove that the expense was incurred or indeed that it was incurred for purposes related to your work. It simply means that a detailed tax invoice or receipt is not necessary. The ATO can still challenge a $200 expense, in relation to which substantiation was not required, on the basis either that no expense was incurred, the amount claimed was more than the expense that was incurred, or that the expense that was incurred had nothing to do with work. How you go about proving the expense was incurred, its magnitude and its relevance to work will vary from case to case, but at the very least, one would like to see a bank debit in the name of the taxpayer who has claimed the expense and some evidence, even if it is flimsy, of the connection to work. I repeat again, there is no such thing as a standard deduction under Australian law as currently drafted;
- Claiming personal expenses for rental properties. I covered matters related to this point in an earlier preamble (see TaxVine 21, 8 June), but I would simply re-emphasise that you cannot claim a deduction for rental expenses in relation to a property where, during certain times of the year, that property is being used by the taxpayer for their personal use. In such a case, an appropriate apportionment of the rental expenses is essential.
Apparently, half the adjustments that are made are made because of poor record keeping. While there is no obligation on agents to check each and every record that is referable to a taxpayer’s return, it would be prudent to have a look at some of them and to explain in very clear and unambiguous language to the taxpayer that if they don’t have the relevant receipts where substantiation is required, the deduction is likely to be knocked back with attendant possible penalties and interest. Where substantiation is not required, the need for some evidence of the expenditure and its connection to the work activities that justify the deduction is also essential.
Although there is a frequent rush to lodge tax returns as soon as possible so as to secure refunds, the better course for registered tax agents is to advise taxpayers to wait until the pre-fill information is available from the Tax Office, which should minimise any risks of income being inadvertently overlooked. That information should be available by mid-August.
|Senior Tax Counsel - Bob Deutsch|
Registered tax agents and professionals are practising in a particularly difficult environment at the moment, with considerable evidence to suggest that the level of mistakes in returns lodged with the assistance of such agents and professionals, contain a remarkably and surprisingly high number of mistakes of the kind outlined above. It is important in protecting the reputation of the tax profession generally to minimise these mistakes, particularly where agents and professionals are engaged in the preparation of the returns. In saying that, an agent cannot be responsible for all mistakes – for example, if a client simply ignores an amount of income that they have derived from a temporary job, there is usually little that the agent can do to identify that issue. However, those examples where the agent has not been fully briefed by the client do not appear to be the real problem area. I would urge all agents to be extra vigilant in the preparation of returns for the year ended 30 June 2018 and have particular regard to the errors that I have identified above.
It is up to all of us to do the right thing so that our reputation as tax professionals is restored and then enhanced – if we do that our potential client base will expand with benefits for all concerned. If we fail potential clients will look elsewhere for assistance.
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Bob Deutsch, CTA