2020 tax traps:
- The cost of claiming too early or late
- Why the ATO shortcut isn’t for everyone
- How missed deductions will cost you
With the 2020 tax season coming hot on the heels of a worldwide pandemic, the financial impacts felt by many Australians will have implications come tax time.
Those implications include a new series of pitfalls to avoid in order to maximise your refund while not raising any red flags with the Australian Taxation Office (ATO).
eTeam Tax director Ross Morello says taxpayers should lean on their accountant for extra guidance this year to help navigate the lodgement process post-COVID-19.
“There are a lot of changes for people to get their head around but the process should be fairly smooth when you’re working with a tax professional who can guide you on the key areas such as deductions,” Mr Morello says.
Avoiding these tax traps will not only see your tax return finalised sooner but getting these right could also boost your refund.
Claiming too early
Thousands of Australian taxpayers who’ve felt the financial pinch in recent months will be more eager than ever to receive a tax refund this year.
But lodging too early can come at a cost.
“The ATO typically advises not to claim before your employer has provided your final pay information for the year, via the Single Touch Payroll system,” says Mr Morello.
“If you do lodge too early and those figures change, you could end up with an increased refund in the best-case scenario or a having to pay tax back in the worst case. There’s also a risk that your return may be held up in processing by the ATO.”
Employers with less than 19 employees have until July 31 to submit all wage information while those with 20 or more employees must finalise by July 14.
Claiming too late
On the flipside, claiming too late has consequences too — an $850 late lodgement penalty is payable if you miss the cut-off.
While the final deadline to lodge your tax return is generally October 31, taxpayers who lodge through a tax agent normally have until May 15 next year to lodge without penalty.
But waiting until the eleventh hour could put you at risk of a fine — tax agents will be busier than ever this year and late lodgers are being warned that delays are likely.
“Generally those who are expecting a tax bill will hold off as long as they can to lodge their return,” says Mr Morello.
“A better approach is to get the process moving with your tax agent in order to get an estimate of what may be owed and agree on a lodgement date that works for you.”
Working from home shortcut
If you were sent home to work during the COVID-19 pandemic, you will have incurred additional costs in the course of doing your job from your own home.
In order to make it easier to recover those costs, this year the ATO introduced a working from home shortcut which allows you to claim a rate of 80 cents per hour for additional home office expenses such as equipment, depreciation, internet, running expenses such as heating, cooling, lighting and cleaning.
But that approach could leave you out of pocket, according to Mr Morello who says there’s a fair chance your actual costs will be higher than what’s covered by the ATO rate.
“If you’re working a standard 40-hour week, the 80 cents per hour shortcut would come to $32 per week,” says Mr Morello.
“If you’ve paid out for items such as a new desk, chair, printer or a headset, it’s likely those costs would far exceed that.
“You may see a better result by claiming running expenses at the regular home office rate of 52c per hour and then claim any specific work-related purchases as additional deductions.”
Those wanting to claim specific work-related expenses as deductions need to have kept accurate records throughout the year.
Those records — including receipts, invoices, bank statements, logbooks and diaries — form the basis for the itemised list of deductions you intend to claim at tax time.
The onus is also on you to produce those records in the event of an ATO audit.
“Poor record-keeping could wipe hundreds of dollars off your refund,” says Mr Morello, who advises taking photos of receipts and saving them into a digital folder.
“Deductions claimed in round numbers are also likely to raise a red flag with the ATO.”
Hindsight is a wonderful thing and if record-keeping hasn’t been a priority for you in 2019-2020, all is not lost.
“You can claim up to a certain amount for items such as travel and laundry without receipts,” says Mr Morello.
“eTeam Tax agents will also flag any missing deductions that are specific to your industry, such as licences and memberships, to maximise your refund.”