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June 30 is approaching quickly, which means tax time – and a likely refund – is just around the corner for a majority of taxpayers.
It's a mini-windfall that can be put to great use, but if you don’t keep comprehensive (and accessible) records, you may end up not claiming everything you’re entitled to. Whether it’s a work-related expense, rental property or other investment deduction, you need to keep records!
Here are four possible ways to tackle tax time paperwork.
The traditional way of collecting tax records is still effective, although perhaps more time-consuming than end-of-financial-year paperwork usually needs to be.
Every receipt you collect can be piled into a box to be sorted out when the financial year ends. If you use a tax agent, you may save time and money by sorting the receipts into categories or creating a list or spreadsheet that tallies them up.
Remember that after tax time, you can’t throw out all those receipts! The ATO says you generally need to keep your written records for five years after you lodge your tax return, five years after you have claimed a depreciation deduction, and five years after you dispose an asset that involves a capital gain or loss.1
Many people’s spending today is done electronically on credit and debit cards, which leaves a handy trail showing where their dollars go each financial year.
You will still need receipts as proof of purchase for most deductions, but printing out bank account and credit card statements will show things such as interest costs, fees, and purchases during the year that might jog your memory on a tax-deductible expense.
When submitting your 2017/18 tax return, be aware that the Australian Taxation Office (ATO) has announced that it will be closely examining claims for work-related car expenses.1
Assistant Commissioner Kath Anderson said over 3.75 million people made a work-related car expense claim in 2016–17, totalling around $8.8 billion. This includes around 870,000 people claiming the maximum amount under the logbook-free cents-per-kilometre method.
“It’s legitimate to claim for 5,000 kilometres if you did actually do them as part of earning your income,” said Ms Anderson.
“However, we are concerned that some taxpayers mistakenly believe that this is a “standard” deduction they are entitled to, without needing to provide any evidence of having travelled that distance, or even having undertaken any travel at all.
“It’s true that claims of up to 5,000 kilometres using the cents per km method don’t require a log book. However, you still need to have done the kilometres as part of your job and be able to show how you calculated your claim.”
Ms Anderson said there are three golden rules for taxpayers to remember to get it right.
“One – you have to have spent the money yourself and can’t have been reimbursed, two – the claim must be directly related to earning your income, and three – you need a record to prove it,” she said.
The ATO’s app has a useful myDeductions tool that enables users to record their expenses, photograph receipts and log their work-related travel using GPS data.
It stores all their information in one place and that information can be uploaded into online tax returns at tax time, or emailed to a tax agent. The app also can be used by sole traders to record their income, and includes a separate tool that lets employers and workers calculate how much tax should be withheld from payments.
‘Back up your data regularly in case your device is broken, lost or stolen,’ the ATO says.2
Tax agents and accountants still process the majority of Australians’ tax returns, and it may be tempting to let them handle all the hassle.
However, they are not magicians who can conjure evidence from thin air, and they cannot claim tax deductions for expenses where there is no proof. You do still need documentation! And it’s important to remember that any errors or omissions are still the taxpayer’s responsibility, even if you do use an agent!
Most tax agents will provide information about the types of records needed before your meeting. It can be wise to listen to them, otherwise you could be wasting your time, their time and your money.
If organising your tax affairs is something that you could be a little more - well - organised about, why not think about putting a tax collation system at the top of your July to-do list.
1 ATO Media release: ‘ATO driven to scrutinise car claims this tax time’. Accessed 20 May 2018.
2 Australian Taxation Office; Keeping your tax records; www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Keeping-your-tax-records/; accessed June 2017
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