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Tax myths – what’s true and what’s false

  • Written by Mark Chapman, Director of Tax Communications at H&R Block

I was audited by the ATO last year so this year, I’ll be safe from being audited again!

False.

If anything, the opposite applies. Once you’ve triggered risk flags at the ATO, you are well and truly “on the radar” and can expect to be scrutinised again, not just for your original “offence” but in respect of all your tax affairs. So, if you were audited last year, there’s a good chance that this year’s return will be checked extra carefully and if the ATO find something wrong, they won’t hesitate to demand that you “please explain”.

You can ask the ATO for an extension of time to pay a tax bill

True.

It isn’t in the ATO’s interests to cripple you financially and forcing you to pay a tax debt all in one go is a good way to do that. Indeed, demanding immediate payment is a good way to scare someone away from interacting with the tax system altogether, with knock-on impacts on tax return lodgements and overall compliance.

Instead, if you have a tax debt, you can ask to set up a payment plan to clear it in manageable smaller payments over an agreed period of time. A payment plan takes much of the pain out of paying the debt – it allows you to break down your payment into smaller amounts that are made via instalments and spread over a fixed period of time. Within a payment plan, you pay back a sum of money weekly, fortnightly or monthly until the balance is cleared. Just make sure that if you set up a payment plan, you stick to it!

Payment plans can be arranged by your tax agent or via ATO online services.

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.

False.

The rules specifically exclude such a claim; the home office deduction rules limit claims to the outgoings in relation to the running costs of the home office. So, items such as heating, electricity, cleaning, home internet and depreciation of desks, computers, carpets, chairs, filing cabinets and bookshelves are included but “ownership” costs (such as rent, mortgage interest, rates and home insurance) are prohibited for people simply who work from home.

Only people who run a home-based business can claim these costs. A home-based business can be run:

  • at home – that is, you do most of the work at your home, for example a hairdresser who uses a room as a salon or

  • from home – that is, your business doesn't own or rent separate premises, eg an electrician who works at customer’s premises but stores tools at home and has an office to handle the paperwork.

To be eligible to claim, the area set aside in your home for your business must have the character of a place of business, for example:

  • it’s clearly identifiable as a place of business. You might have a sign identifying your business at the front of your house, for instance.

  • it’s not readily suitable or adaptable for private or domestic purposes

  • it’s used exclusively or almost exclusively for carrying on your business (a room that’s used for private purposes occasionally won’t qualify but a room that is used incidentally as an entrance to your home will be OK)

  • it’s used regularly for visits by your clients.

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

False.

To claim a deduction for self-education costs, the course must either:

  • maintain or improve the specific skills or knowledge you require in your current employment activities

  • result in or is likely to result in, an increase in your income from your current employment activities.

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.

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.

False.

Just because your employer demands that you wear clothing from the shop doesn’t make the clothing deductible.

You can claim for occupation-specific clothing that distinctly identifies you as a person associated with a particular occupation, for example, the chequered pants a chef wears or a judge's robe. Occupation-specific clothing isn't every day in nature and allows the public to easily recognise your occupation.

The clothing doesn’t qualify as a “uniform” either, which must:

  • be distinctive to your particular organisation so that a casual observer can clearly identify you as working for a particular employer

  • identify the products or services provided by your employer (for example, by a logo on the uniform)

These particular clothes are of a conventional nature, is everyday attire and could be worn by anybody at anytime.

Each taxpayer has different entitlements and requires personalised and professional advice. Now more than ever, we [at H&R Block] recommend all Aussies make an appointment and have a conversation with their tax agent.

 

 

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