Tax traps: watch out for these when lodging your tax return
Tax time can be a confusing and frustrating time for people – sure you might get a nice little tax refund but navigating through all the deductions and rules can be mystifying. It’s easy to get caught up with extra deductions or glossing over a secondary income, but this could cost you far more than what you save.
Here are a few areas you should navigate with caution, or talk to your tax agent about.
Every year the ATO gets more savvy and this year they are targeting those who claim deductions they aren’t entitled to. Essentially, a deduction is a cost that you incur to do your job. So if your work reimburses the costs, or you’re unable to show that the cost is purely for work and not your private life, you cannot claim the deduction. Some of the ones to look out for are listed below.
For some jobs, workers are required to drive to different locations; this could be a real estate agent driving between houses, tradies driving between construction sites, etc. If this is you, then you are eligible to claim a deduction. If you only use your car to drive between home and work you cannot claim a deduction, as this is defined as private travel (even if you travel to and from work more than once a day).
Those who use their own phone or internet for work, or work overtime in their home office, can claim some of these costs as tax deductions. This does not mean you can claim all of your mobile or internet usage; you will need to work out what proportion of your plan you use for business purposes.
A builder who requires steel-capped boots to perform their role, or a those who must purchase a unique uniform are eligible to claim work expense deductions (and laundry/dry cleaning costs for the latter). However, you cannot claim a deduction for a role that has a general dress code – for example those who work at Myer and have to wear black and white to work cannot claim the cost of black and white clothing as a deduction.
Air hostesses might have certain ways they are expected to dress or groom, as directed by the airline, however, they are unable to claim the cost of their makeup as a deduction. They are able to claim the cost of rehydrating creams that are used to combat the harsh skin dehydration caused by pressurised cabins.
You can claim this deduction only if your studies are directly relevant to your job. For example, a sales assistant studying towards a certificate in business administration to apply for assistant manager, or a registered nurse studying towards a midwifery specialisation. You cannot claim this deduction if you’re working in retail to support yourself while studying toward a bachelor of science, or studying toward a career change.
To find out exactly which deductions you’re entitled to based on your job, check out the ATO website.
Did you find that you have a lot of deductions to keep track of? The ATO has launched an app called myDeductions where you can take pictures of your receipts and keep all of your records in one place. It may not help right now, but in 12 months you’ll be grateful!
Uber, Airbnb and the Shared Economy
Do you drive an Uber occasionally? Rent out your spare room on Airbnb once in a while? If you’re earning money in the shared economy, you will need to declare your income earned. Many people believe that they only need to declare the money if this becomes their major income stream, but this is untrue. You will have to declare every dollar earned and pay tax accordingly. Unless all of your sources of income are under the low income threshold ($18,200).
If you are declaring income earned through the shared economy, there are often deductions to reduce the amount of tax payable (such as deductions for part of your mortgage, rates, internet usage etc). For more information, check out The Sharing Economy and Tax.
Instant Tax Refund
For some people, the allure of having their lump sum payment today can lead them into sticky situations. The important thing to realise about ‘instant tax refunds’ is that you’re taking out a loan until your tax refund is deposited.
This means you’re subjected to fees as per a loan agreement – check out the example at Etax. Should you not be entitled to the tax refund you expected, you will be liable for the money received ‘instantly’ as well as set up fees. If you’re unable to pay back the lump sum, you could easily find yourself in long term debt.
So when considering an instant tax refund, ask yourself if you can wait the 6-10 business days for your full tax refund. If the answer is no, you may want to consider looking at other loan options.
At Ferratum, we are transparent with our costs and our smart little loans have short terms to ensure you don’t get caught in long term debt.
Apply today for that quick cash advance before your tax return.