Most important tax tips, tricks, and mistakes to know for the EOFY

Let’s face it: this year has been brutal for the cost of living. For this reason alone, it’s worth going into the EOFY tax season feeling armed and dangerous with Maximum Deduction Knowledge. But the problem? Too many Australians aren’t ‘tax literate’, according to CPA Australia resident tax expert Elinor Kasapidis. 

“The way our tax system works, if you don’t claim a legitimate deduction, you won’t get it,” says Kasapidis. “Plenty of taxpayers miss out on refunds because they don’t know what they can claim. With cost-of-living biting, a few hundred dollars in missed deductions may really hurt this year.”

So what can you claim? What should you claim? And which common mistakes should you avoid when lodging your tax return? 

Let’s break down some strategies for accurately maximising your tax return and becoming tax literate, with advice from HR Block.

Always consult a registered tax professional about filing your tax return.

The Australian Taxation Office takes what it does seriously, so they’ll compare what you claim with other taxpayers in similar situations. If your deductions look suspicious or don’t match previous years, the ATO will probably ask you to rethink your claim – or worst-case scenario, audit you.

“There are strict rules around what you can claim,” explains HR Block director of communications, Mark Chapman. 

“Firstly, you need to have incurred the expense [in your line work] and not been reimbursed; secondly, it must directly relate to the income you earned; and thirdly, you need to be able to prove that you spent the money, so you’ll need an invoice, receipt or some other proof of purchase.”

Ticking these boxes can help build a strong case for your claims. Otherwise, you risk looking like a red flag to the ATO.

According to Chapman, obvious red flags to avoid when filing your tax return include:

• Making unrelated claims. If you deduct expenses that have no connection to what you do for work, have already been reimbursed by your employer or covered by work allowances, or can be used in both your work and private lives (i.e. clothes), you look a little suspect. 
  
• Changing what you claim from previous years. Making sudden large claims you haven’t in previous years could hint to the ATO you’ve embellished your tax return. Instead, they expect your claims to match other tax-payers from similar backgrounds.
  
• Not providing receipts. Get in the habit of putting all evidence or substantiation for your claim in one place, like a folder, so you can back up all deductions with proof. 
  
• Over-reliance on flat rate deductions. Especially if you work from home or use your own vehicle for work-related travel, it’s important to substantiate your expenses with invoices or bills. If you use a flat rate for one deduction, avoid claiming the expense again as a separate cost (i.e. claiming the flat rate for car travel then claiming fuel costs as a separate expense). 
  

Chapman also warns, “there’s a long list of things – tax ‘myths’ if you like – that many people are convinced are deductible but really aren’t (except in very specific circumstances).”

These tax myths include making claims for:

• Childcare
  
• Business suits and formal wear
  
• Golf club and gym memberships
  
• Streaming subscriptions
  
• Dry cleaning services
  
• Movie theatre tickets
  
• Drivers license costs
  
• Cosmetic surgery
  

While each of these may help improve your life, unless you can prove the cost was incurred by your line of work, necessary to your work, and covered with receipts, you likely can’t claim it. Consult a tax advisor if you’re not sure.

A lot of what causes trouble for taxpayers can boil down to silly mistakes, says Chapman. If you make a typo on your name, forget to tell the ATO you’ve changed addresses, or report income incorrectly because you didn’t check the ATO’s pre-filled data, your return can get bogged down in bureaucratic red tape. 

Careless mistakes like these delay payment of your tax return or potentially lead to an audit, because the ATO has to manually check your Tax File Number and verify who you are. Remember: the onus is on you to make sure everything on your tax return is correct.

“Some people assume that because the data comes from the ATO, it must be right. That’s a dangerous assumption, especially in July and early August,” warns Chapman.

“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.”

The Australian government has changed what you can claim when working from home. From 1 July 2022, you can either claim expenses individually or at a flat rate of 67 cents per hour. 

Items covered by this new flat rate include:

• Energy bills
  
• Broadband plans
  
• Mobile plans
  
• Stationary and computer accessories. 
  

Chapman encourages taxpayers to receive advice and consider whether it’s worth it to claim each item separately or under the fixed rate. 

For example, if you use the flat rate to claim your mobile phone usage when working from home, then you can’t claim it again for all the times you use it in the office. Them’s the rules!

Donating to charity is a common claim to make on tax, but you’ll still have to tick the appropriate boxes, says Chapman. 

Namely, you’ll need a receipt for the donation and it needs to be a genuine donation of more than $2 (i.e. you didn’t expect to receive anything in return). According to these rules, raffle tickets and charity dinners are out. Donations to the Red Cross, however, are most likely in. 

Similar rules apply to cash gifts you receive from friends and relatives: the gift needs to be a genuine gift to avoid being subject to tax.

When in doubt, don’t file your tax return alone. “There’s a reason 70% of Australians use a tax agent to prepare their tax return; tax is complicated!” says Chapman. “Get your tax return wrong and the comeback is on you, either with a lower refund or ATO penalties.”

“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.”

Better still, you can claim the cost of hiring a tax agent on the following year’s return, meaning more deductions and money back for you. It’s an investment that pays for itself, usually several times over. 

“Most people find it far less stressful to simply pass on all their information to a tax accountant like H&R Block and leave it to the accountant to complete their return, safe in the knowledge that the return will be accurate and complete,” explains Chapman. 

“An experienced tax accountant will usually be good at sniffing out those obscure tax deductions you didn’t know.”

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