IT'S time to prepare for the end of the financial year, and getting organised now can make it a lot easier to complete your tax return - and hopefully receive a handy tax refund in a few weeks.
Sorting out the necessary paperwork is an essential first step. You'll need to hold onto evidence of income like payment summaries or investment statements plus receipts for any deductions you claim, for at least five years.
Be careful to record all the income you've earned this financial year including returns on investments. The Tax Office collects information from providers like your employer, bank, share registry and other government agencies, and matches the details against information you provide in your tax return. Even a small discrepancy can mean receiving a letter from the taxman asking you to pay tax plus possible penalties on overlooked earnings. It could also flag you for a tax audit.
If you have relatively simple tax affairs you can complete your tax return online using the Tax Office's free e-tax software. This offers the advantage that parts of your return - like interest earned on savings accounts, can be pre-filled using Tax Office data. It's a simple way to ensure you don't overlook anything.
It also pays to be careful about what you claim on tax. Work-related deductions up to total of $300 can be claimed without providing receipts. Expenses over this amount need to be backed up by documentary evidence.
There is often considerable confusion about what expenses can and can't be claimed on tax. One common area of mistake is work related travel. You can't generally claim the cost of travel to and from your regular workplace though you may be able to claim the cost of travel between two different places of employment.
There are a few ways to claim work related travel. The 'cents per kilometre' method may apply if you traveled less than 5,000km for work in the past financial year. The Tax Office sets out the cents per km rate you can use on its website (www.ato.gov.au).
If you racked up more than 5,000km in work-based travel this financial year, you may able to claim one third of your car expenses, or 12% of the cost of the vehicle. Alternatively, if you've maintained a logbook for 12 consecutive weeks, you will have a more precise idea of the percentage of vehicle use - and therefore costs, that relate directly to your job.
Business clothing like a normal suit or office wear cannot usually be claimed on tax. A uniform may be deductible if it's branded with your employer's logo or is compulsory or registered with AusIndustry. Protective clothing may also be claimed.
These are just some examples of work-related deductions. I recommend taking a look at the Tax Office website for more information on what you can legitimately be claimed on tax for your job.
Given the complexity of our tax laws, it's not surprising that around 70% of people use a registered tax agent for help completing their return. It takes a lot of the hassle out of tax time and it helps you maximise deductions while staying within the letter of the law. It's also very cost effective as your tax agent's fee can be claimed in next year's tax return.
Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit www.paulsmoney.com.au for more information.
Update your news preferences and get the latest news delivered to your inbox.