Tax Myths, Rumours and Mistruths for Individuals Debunked
It’s safe to say that most of us have at one point in time, heard about a great way to save on tax. “A friend of a friend whose husband’s sister works for the tax office told us…” or, “my work colleague did this and got a huge refund”.
There are myths, rumours and mistruths about most topics and the tax system is no different. To ensure you have the facts, we’ve debunked the most common tax myths, rumours and mistruths when it comes to expense claims on individual tax returns:
- If you do any work from home you can claim a percentage of your mortgage interest and other home expenses as a tax deduction. This is partly true, if you have a dedicated space in your home that is separate and distinct as a workspace then you may qualify to make this claim. However the rules are very stringent and will generally preclude most people who only occasionally work from home or only work from home outside of normal working hours in addition to their usual place of work.
- If you pick up the mail on your way into the office in the morning you can claim your travel cost between home and work. This one is false, the ATO view simple tasks such as collecting the mail, picking up milk, dropping off a package on the way to or from work as mere convenience and not allowable as a tax deduction. To be able to claim this trip the work related activity must be more substantive, such as attending a meeting.
- The tax office has processed my tax return and issued my refund, therefore they have approved and accepted all of the tax deduction claims I have made. False, the ATO process tax returns based on what is called the “Self-Assessment System”. This means that they process all returns based on the taxpayer self-determining that all the claims they have made are correct. The ATO then ensure integrity of the returns lodged by selecting a sample for Audit to determine if those taxpayers have self-assessed correctly.
- I am required to purchase something for my job therefore I can claim a tax deduction for it. Partially true, if you incur an expense in gaining or producing assessable then yes, you can claim a tax deduction. However even if the expense does meet this condition it is disallowed if the item is personal or capital in nature. For example, if you work for a fashion retail outlet and are required to wear the clothes that are sold in the store, this expense is incurred in your job role however the ATO considers this clothing to be of a personal nature and therefore not deductible. Another example of this applies to those who work in the performing arts and wish to claim movie or theatre tickets, the ATO considers these are also of a personal nature.
- I can claim a tax deduction for the donation made to a local community organisation. This is true only if the organisation has Deductible Gift Recipient status with the ATO. You can do an advanced search on the ABN Lookup website to determine if the organisation you are donating to has this status.
We hope this information helps dispel what’s fact from fiction when it comes to individual tax returns. Stay tuned for the next edition of Tax Myths, Rumours and Mistruths where we will cover common misconceptions relating to Investment properties.
Hanrick Curran has over 30 years of experience in providing accounting advice to individuals, SME’s and listed organisations. To discuss your personal circumstances and how the tax rules apply to you please contact your usual Hanrick Curran advisor or alternatively contact Robert Pitt on 07 3218 3900.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.