The ATO has identified the top 10 tax myths and misunderstandings it says are causing incorrect claims, off the back of its landmark individuals not in business tax gap report, which purported that 78 per cent of agent-prepared returns required adjustments, contributing to an $8.7-billion tax gap.
Accordingly, one of the myths encountered by the ATO is that tax agents will take responsibility for their clients’ claims.
“Whether you prepare your own return or you use an agent, you are ultimately responsible for ensuring your claims are correct,” ATO assistant commissioner Kath Anderson told taxpayers.
“Even if you use a tax agent, you are ultimately responsible for ensuring the information in your return, including the deductions you claim, is correct. You cannot transfer that responsibility to your agent so make sure you give them complete and accurate information.”
H&R Block director of tax communication Mark Chapman had earlier told Accountants Daily that the ATO needed to adjust its messaging to ensure they were not placing all tax agents in the same basket of ‘bad eggs’.
“The ATO knows the vast majority of tax agents are reliable and low risk and that has not come through in the messaging they’ve put out and I think that messaging needs to be rebalanced.”
Likewise, Change Accountants & Advisors managing director Timothy Munro believes the ATO should reconsider its approach before it risks damaging the reputation of the entire industry.
“Why would the ATO want to come out and denigrate a group of people that's working its hardest on its own behalf,” Mr Munro said.
“The ATO in doing that, will alienate accountants, make them upset and it goes towards ruining the trust that clients have with accountants.”
Top of the list is the myth that everyone is entitled to claim a “standard deduction” of $150 for laundry, 5,000 kilometres for cars or $300 for work-related expenses.
“While you don’t need receipts for claims under $300 for work related expenses, $150 for laundry and 5000 kilometres, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim,” said the ATO.
Another popular myth is that bank or credit card statements can be used in place of a receipt , but are unfortunately insufficient in providing enough detail to support the claim.
According to Ms Anderson, some items are claimable for a small number of taxpayers but it’s a myth that the majority can claim.
“There are only a handful of taxpayers with special circumstances who can claim things like gym memberships or makeup containing sunscreen. For most, there isn’t a link to earning their income,” she said.
With more people working from home, Ms Anderson says the ATO is becoming concerned about taxpayers claiming their entire Foxtel or Netflix subscriptions, or their whole phone bill, on the basis that some part relates to earning their income.
Other myths in the top 10 include believing you can claim normal home to work trips; that you can claim plain clothes you wear to work, or claiming hair, clothes and makeup because you have to look good at events; or claiming all holiday travel expenses when only a few days are in relation to a conference or work.
This time last year, mid-tiers like Moore Stephens and HLB Mann Judd shared common client misconceptions to watch out for. You can read more about them here.
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Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.