Top Mistakes When Preparing Your Tax Return

With 84% of taxpayers expecting a refund, and the average size of refunds last year reaching close to $3,000, it pays to spend a little time and effort ensuring you've got every detail of your return right and that you've avoided some of the more common traps that people tend to fall into.

So what are H&R Block's top tips for getting your return right this year?

1. Claim what you're entitled to

You're entitled to claim a deduction for any expense which you incurred in earning your income. So, if you have incurred a work-related expense, and you have the paperwork to prove it, don't hesitate to claim it. Amongst the common deductions many taxpayers claim are:

1. Costs of using your own car for work. This doesn't include driving to and from work but it does include visiting clients or suppliers, and driving from one work-site to another
2. Costs of travelling for work. If you are required to work away from home, and you incur costs on meals and accommodation, those costs are deductible up to the amount you actually spent. If your employer pays you an allowance to cover your traveling costs, that allowance is taxable
3. Costs of tools and other equipment. Whether it's the cost of tools if you are a tradie, or the cost of a new computer, laptop or mobile phone if you are office-based, if you spend it, you can claim it, provided it's used for work purposes (if it's used partly for work and partly for private use, you can only claim the work-related proportion). Items costing $300 or less are deducible in full, immediately. Items costing more than $300 are deductible over several years.

A good tax accountant will be able to tell you exactly what you can and can't claim, minimising the chances of an audit at a later date.

2. But don't embellish deductions

You can only claim what you've spent. So, don't inflate deductions in order to get a bigger refund and only claim for costs you can prove you spent, by producing an invoice, receipt or bank statement for instance.

Self-lodgers using the ATO's myTax program are monitored as they prepare their return by the ATO's computer systems to ensure they're not over-claiming. The ATO's computer systems compare your claims to those of others like you and if your claim rings alarm bells, myTax will give you a stern warning inviting you to rethink that deduction.  Ignore that message, and you could be headed for an audit!

If your deduction claims are found to be incorrect, you will be required to repay the tax avoided, plus pay interest. The interest charged by the ATO is based on the 90-Day Bank Accepted Bill rate, but with an uplift factor of 3%, and is calculated daily compounding basis. If the ATO believes that you have acted carelessly, a penalty between 25% and 95% of the tax avoided may also be charged.

3. Don't rely on pre-filled data from the ATO

These days, with the push of a button, you can pre-fill lots of your income information straight from the ATO's systems. Take care though and don't assume that income data is correct or complete. Always use your own information (payment summaries, etc) as the key source data. Some people assume that because the data comes from the ATO, it must be right. That's a dangerous assumption.

If you omit income and get questioned by the ATO, the legal burden will be on you, even though you've taken the information straight from the ATO's pre-filled data.

4. Don't forget the basics!

Lots of tax returns get held up by the ATO because taxpayers have made basic mistakes like these:

• Name or address changed? Tell the ATO before you lodge your return. If you lodge under different details, the ATO won't be able to match it with your Tax File Number. Delays will ensue!
• Not included your bank account details? The ATO doesn't send out refund cheques these days so you need to include your bank details on your return. No bank details, no refund!
• Spelling mistake? If you've added an extra letter to a key field such as your name, that slip of the keyboard could consign your return to a black-hole whilst the ATO tries to manually match your details.

5. Get help!

There's a reason 60% of Australians use a tax agent to prepare their tax return; tax is complicated! Get your tax return wrong and the comeback is on you, either with a lower refund or ATO penalties.  

Most people find it far less stressful to simply pass on all their information to a tax agent and leave it to the agent to complete their return, safe in the knowledge that the return will be accurate and complete. An experienced agent will usually be good at sniffing out those obscure tax deductions you didn't know you could claim so they can often pay for themselves several times over.  Best of all, the tax agent's fee is also tax deductible!

Some common deduction mistakes debunked:

Tax FAQ's:

I work in a fashion shop and my employer requires me to buy and wear clothes from the shop whilst working, therefore I can claim these costs.

You can't make a claim as the clothes are of a conventional nature.

I work as an employed chef and I go to a different restaurant each week to see what our competitors do and therefore I can claim these costs.

This claim is not allowable as the expense is of a private and domestic nature since there is a tenuous relationship between the expense and your current income.

I work in a bottle shop and I purchase products so I can talk to the customers who ask questions on various products.

This claim is not allowable. The expense is of a private or domestic nature and there is a tenuous relationship between the expense and your current income.

I do some work at home in my home office; it is 20% of the area of the house so I can claim 20% of the rent or mortgage.

The rules specifically exclude such a claim; the home office deduction rules limit claims to the   outgoings in relation to the home office, heating, electricity and depreciable costs of desks, computers, carpets, chairs, filing cabinets and bookshelves.

I work for a travel agent, and during my holidays I travel to various tourist sites that I discuss with clients at work.

This claim is not allowable as the expense is of a private or domestic nature. There is a tenuous relationship between the expense and the current income.

Self-Education Costs - I work as a retail pharmacy assistant part time, whilst studying fulltime for my Pharmacists degree, therefore I can claim my education costs.

This claim is not allowable as the education is designed to open up a new field of employment and does not relate to your current income earning activities

Pay TV/ Cable TV costs - I work in the advertising industry and as our clients advertise on Pay TV, I can claim my subscription costs in my tax return

This claim is not allowable as the expense is of a private or domestic nature. There is a tenuous relationship between the expense and the earning of your income.

Parking Costs -I live in the country, without public transport, so I can claim the costs of parking my car in a car park near work.

The costs of driving and parking to get to work are a private expense and are not deductible.

Personal Superannuation Contribution - My only income is from salary and wages. I made a personal superannuation contribution to my superfund and I can claim that amount as a deduction on my tax return.

This claim is allowed. You can make additional concessional contributions up to your concessional contributions cap ($27,500 in the 2024 year, increasing to $30,000 for the 2025 year) and claim an income tax deduction for doing it. This means you can tax effectively top up your super, provided you don't breach your concessional contributions cap.

I am an actor and I can claim the costs of tickets to go to the cinema and theatre.

This claim is not allowable as the expense is of a private or domestic nature. There is a tenuous relationship between the expense and the current income.

I bought a $50 raffle ticket and I can claim it as a donation on my tax return.

This claim is not allowable as it is not truly a gift since it provides a benefit (the possibility of a prize) for you. You can only make tax deductible donations to organisations that have the status of deductible gift recipients (DGRs). The receipt (in your name) must also be kept if the donation is more than $2.  

Updated 8 July 2022