In 2022 Tax Tips

Tax Claims You Won’t Get Away With

No one likes to pay taxes, but most of us do it anyway. We know that we have to because the government uses our money to provide important services like roads, schools, and hospitals. However, a few people think they can get out of paying their fair share by making false tax claims. Unfortunately for them, the government is getting smarter about catching these criminals. Here are a few of the most common tax claims that will get you caught every time.

There are certain tax claims you won’t get away with, no matter how hard you try. In this blog post, we will outline some of the most common ones so that you can avoid making them yourself. Keep in mind that these are just a few examples – if you have any specific questions about your own taxes, it’s always best to speak with an accountant or tax professional.

You can take advantage of tax deductions and credits to save money on your taxes. However, there are also a number of claims that you won’t be able to make. In this blog post, we will look at some of the most common tax claims that you won’t be able to make. So, if you are planning on making any of these claims, you may want to reconsider!

Tax Return: 11 Things You Can’t Claim That Aussies Try To Get Away With

Sneaky claims like cosmetic surgery, golf club memberships or even artificial limbs are some of the deductions that the tax man won’t let you get away with.

Mark Chapman, director of tax communications at H&R Block, said it was surprising the things people try to claim.

The general rule is that if you incur an expense as part of your job and aren’t reimbursed by your employer, he said you can make a claim.

But he has seen some pretty creative attempts to make claims on a range of categories from personal grooming to medical costs. Find out what deductions you can’t make on your tax return.

Childcare

Parents might argue that the only way they can work is to put their children into daycare, so it must be a work-related expense, but this is wrong, Mr Chapman said.

“Childcare is a private cost and not tax-deductible,” he said.

Gym memberships

Many people indeed need a high level of fitness to do their jobs, such as police officers or military personnel, but that doesn’t mean they can claim a deduction for getting fit, Mr Chapman said.

“The category of people who can claim a deduction for gym memberships is restricted to those whose fitness level is well in excess of the norm,” he said.

“So, normal military personnel can’t make a claim, but members of the special forces can make a claim, and so can professional sportspeople, but not gym teachers.”

Business suits

It’s well known that deductions can be claimed for things like protective clothing, work-related uniforms and occupation-specific clothing, like barristers’ robes, but is bad news for others, conventional clothing isn’t claimable.

“Many people try to argue that their business suits are occupation-specific because they never wear a suit outside work. But, sadly, the ATO doesn’t agree; such items are regarded as conventional clothing and are not deductible,” Mr Chapman said.

“In addition, you can’t claim a deduction for getting your business attire laundered or dry cleaned for the same reason.”

Personal grooming

You might need to look your best for work, but that doesn’t mean that the money spent on hair care, make-up and even cosmetic surgery is tax deductible – such costs are regarded as private in nature and not claimable, Mr Chapman said.

Home to work travel

As a general rule, the daily commute cost isn’t deductible, so enduring that train or car ride is all on you.

“So far as the ATO is concerned, the daily grind begins when you get to work and ends when you leave, so the time you spend getting to and from work is private in nature and expenses associated with it, such as train fares or petrol, are not claimable,” he said.

But in good news, there are exceptions. For example, if you’re required to carry bulky tools or equipment or if you are an “itinerant” worker – someone with no fixed workplace who travels to different worksites every day – you may be able to make claims.

“But expect the ATO to look closely if you claim to fall into one of those exemption,” he warned.

Pay-TV subscriptions

Lots of marketing, PR and media people would love to claim the cost of their Netflix or Foxtel subscriptions, but the number who can actually do it is small, and even then, only a proportion can be claimed.

“You can claim if you can show that you’re required to access pay-TV as part of your work,” he said.

“The amount of the deduction is limited to the content that is specific to earning your income.”

Sporting club memberships

Many people think networking on the golf course must be a deduction.

“Surely, a business meeting on the golf course is more likely to land a deal than sitting around the boardroom table? Quite possibly, but that doesn’t make golf club memberships or other similar costs, such as tennis clubs or MCG memberships, a claim,” he said.

Entertainment

Landing new business by taking customers out to that swanky new restaurant that’s just opened doesn’t cut any ice with the taxman, Mr Chapman warned. Money spent on entertaining is not tax-deductible, he said.

Medical costs

Some people have medical issues that impact their ability to work, so the thinking goes that if they need to invest in medical treatment or appliances to help with the health issue, it must be tax-deductible, Mr Chapman said.

“As a result, we see lots of people trying to claim for things like sleep apnoea machines, hearing aids, wheelchairs and artificial limbs,” he said.

“Unfortunately, the ATO regards the cost of such devices as private in nature since they are primarily intended to improve the health and wellbeing of the taxpayer. So, the costs are not deductible.”

For those confused, there used to be a tax offset for medical expenses, which provided an alternative way for many people to obtain tax relief for this kind of expense. Sadly, it was abolished on July 1, 2019, he said.

Toilet paper

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Davide Costanzo, chairman of the Moore Australia Tax Committee, notes that expenses of a private nature such as meals, tea and coffee, toilet paper, clothing and gym memberships are some of the common claims that people try and get away from with.

Homeownership costs

Individuals may be tempted to claim some homeownership costs in relation to the home office, such as interest on the home loan or occupancy expenses like rates.

“While this may be allowable in certain scenarios, it is very important to note that this may lead to capital gains tax on the disposal of your family home, which may have otherwise been an exempt gain under the main residence exemption,” Mr Costanzo said.

Common Tax Return Mistakes

The ATO works hard to find mistakes on tax returns. With more tools and access granted to them every year, it’s getting easier all the time. So, if you think you can get away with a few extra deductions or leaving off your side-gig income, think again.

These days, the ATO collects a huge amount of information about all of us. Our employment and Share Economy income, bank and credit transactions, health insurance, centrelink, child support, bank interest… the ATO can see it all.

These days, your tax return is almost like an “honesty test” because the ATO knows so much already.

What they don’t know is your tax deductions. But they are watching those more carefully than anything right now.

Here’s what the ATO says about it: 

Enhancements in technology and the use of data means we are able to take a much broader approach than previous years; and identify and investigate claims that differ from what is normal across all industries and occupations.

Will you find yourself in the ATO spotlight? First, it’s important to lodge an accurate tax return so you can avoid getting into hot water with the ATO. Exaggerated or “guesstimate” expense claims, or a lack of receipts and evidence, will often be flagged for investigation at the ATO.

Guessing Or Estimating Your Income And Tax Paid

On your tax return, ensure you use accurate figures when you enter your income and the amount of tax you’ve paid. The ATO has records of this, and they compare what you submit against the information they already have. They might not have records of some types of income like consulting or solo work, but they can see your accounts.

With some employers sending PAYGs, some using single touch payroll, and some maybe nothing at all, it can be hard to be sure about all your income.

All your entries must be correct and complete. Just a few out of place dollars can attract the ATO’s attention.

Get a tax agent to download your actual ATO income data right from the ATO. Etax does this for you automatically.

Guessing Or Estimating Your Tax Deductions

The ATO has become obsessed with the tax deductions claimed by ordinary Australians. They could be nabbing big-business tax dodgers who hide all their profits overseas and pay no tax, but that’s more difficult. The fact is, they are looking directly at you and me.

There is one important thing the ATO doesn’t already know about your taxes, and that’s your tax deductions. This makes them a bit uncomfortable. Deductions are something only you can keep track of.

Don’t be “creative” with tax deductions because now, the ATO analyses every item you claim. Then they compare your deductions against other people in your line of work, your location, your industry, your age group, and their own ‘benchmarks’. So if your deductions look too high to the ATO, watch out! They also have an uncanny knack for asking about items where you can’t find a receipt, so it’s best to have that sorted in advance.

TIPS:

  • Save receipts into your Etax account or a similar site you can log into on your mobile – and save the receipts right when you make a purchase, so you don’t have to hunt for them later.
  • Enter the real, exact amounts from your receipts into your tax return.
  • Tax agents know what the ATO is looking at, and they know exactly what is allowed in your deductions.
  • Learn more about tax deductions

Failing To Declare Overseas Income

Many Australians work overseas for a period of time during their lives. Often they forget to pay their Australian taxes. Others simply assume they won’t need to lodge a tax return back home. Those are both bad mistakes. If you work overseas, talk to a tax agent asap to keep your taxes away from trouble and avoid big tax payments.

The fact is, if you are an Australian resident for tax purposes (which is more complicated than just being here), then you should still lodge an annual tax return in Australia even if you are living and working overseas at the moment. This is because you need to declare all your foreign employment income AND any other income you receive from that country.

Foreign income includes:

  • pensions and annuities
  • employment income
  • investment income
  • business income
  • capital gains on overseas assets

Are you working overseas but not sure about the tax rules back home? You really should talk to a tax agent. Don’t leave it to chance, and don’t self-prepare a tax return unless you really know what you’re doing.

Over-Claiming Expenses For A Rental Property Or Holiday Rental Property

The most common tax return mistakes relating to holiday and residential rental properties are often due to the strict rules applied to when you can and cannot claim tax deductions for the property related expenses over the year.  If you own a residential or holiday rental, it’s worth making note of the following. Not all expenses can be claimed!

Common Tax Return Errors

Holiday rental properties:

  • Remember that you can’t claim deductions on a holiday rental property that is not genuinely available for rent. For example: When you stay in your holiday home personally or periods when you allow friends or relatives to stay in the property free of charge. These periods of occupancy must be removed when calculating your overall expenses.
  • If your holiday rental is only available to rent for part of the year, you must adjust your deduction claims based on the portion of the year the property was for rent. Your Etax Accountant can help you do this.
  • If you and your spouse jointly own property, split the expenses evenly between both tax returns. You can specify your percentage ownership of the property in the online Etax return. You should claim only your percentage of all claims and figures for residential rental properties.)

Residential rental properties:

  • You must declare all the income you earn from your property each financial year.
  • You can only claim expenses for the period of the year the property is available for rent. Also, the expenses relating to the property prior to be it being rented for the first time are not claimable.
  • The costs of renovations and capital works cannot be claimed straight away. Instead, these are claimed at 2.5% of the total cost each year, for 40 years.

Tax Deductions You Might Not Have Known You Can Claim

office with documents money accounts 3

Tax Time 2021 is under way, meaning that millions of Australians will lodge their tax returns over the next few months. With average refunds last year hitting $3,600, it pays to make sure that you’re claiming all the deductions that you’re entitled to.   The best way to do that is to get professional help from a tax agent , who will be able to guide you to all the deductions you can claim that you might not have realised were available whilst guiding you away from anything you thought you could claim that’s actually not allowed.

When it comes to work-related expenses, the general rule is that if a purchase is made to earn income or operate your business, you can claim a deduction. Some of those deductions will be obvious, but some of them could be just a bit unusual…

Dogs

Can you seriously claim a tax deduction for your pet pooch? Unfortunately not. But there are circumstances where a deductible dog could be a real possibility. For example, if your business uses a guard dog to keep your premises secure, a dog is indeed deductible. This is because it’s regarded as a capital asset of the business, and you can claim an immediate deduction for the whole cost using the very generous instant asset write-off for small businesses. But, obviously, it needs to be a dog suitable for the purpose; a poodle is unlikely to cut it. The same logic applies to dogs used on a farm, such as a sheepdog.

Sex Toys

It’s well established that you can claim a deduction for the tools you use in your trade. But depending on what your trade is, your tools could be very different to the hammers, spanners, and drills usually claimed. If you work in the adult industry, you could be looking at a deduction for sex toys, lube and all manner of “accessories”. You can only claim the business use element, of course; if you use them in your personal activities, forget the tax deduction.

Performance Tools

If you’re a professional performer (actor, musician, dancer, magician, circus performer, etc), there are all manner of strange deductions which you might look at claiming. Mime lessons? Absolutely. The cost of ceremonial swords? Certainly, if you’re a professional sword swallower. Acting classes, dance classes, musical instruments, magic tricks “¦.if you make a living from stage or screen, a whole world of odd and interesting claims opens up to you.

Social Functions

The ATO won’t let you claim tax deductions for a night out as a general rule. The exception is where attending the function is actually part of your work. An example would be where a journalist attends a function that they will later report on through their media outlet; in that case, a deduction can be claimed.

Gym Memberships

The ATO takes quite a hard line around deductions relating to personal health and fitness, but a few people are entitled to claim gym memberships, typically those who require a level of fitness well above the norm. Examples might include professional sportspeople and defence force personnel who perform duties designed to keep them in tip-top shape, such as special forces members.

An Apartment In Another City

Of course, if you own an investment property, you can claim deductions against the rental income, but did you know that in some cases, you can claim deductions against a place you live in yourself? For example, under new guidelines issues by the ATO, if you’re required to work away from home by your employer, your assignment in the other place is only temporary (so you haven’t actually relocated), and you choose to rent or buy an apartment in the other work location rather than relying on hotels or motels, you can claim a deduction for the work-related costs relating to the apartment, including either rent or interest on the mortgage, depending on whether you rent or buy.

Charitable Donations

Any donation over $2 is claimable as a tax deduction provided you have supporting documentation (such as a receipt), and it’s paid to a Deductible Gift Recipient (DGR). The most well-known charities are DGR’s.

Tax Affairs

If you paid for a tax professional to complete last year’s tax return, you can claim a deduction for the cost in this year’s return. Better still, you can also claim a deduction for any travel costs you incurred in getting to and from your agent. Finally, if you’ve paid for any tax advice during the year, that too is deductible.

Income Protection Insurance

If you pay for insurance premiums against loss of income, those amounts are tax-deductible. But be careful; that doesn’t include life insurance, critical care insurance or trauma insurance. It also excludes policies paid for out of your superannuation contributions.

Handbags

Great care is required here. The handbag needs to be fit for work purposes and actually used for work purposes, such as carrying work papers or a laptop computer. You might struggle to claim that new Gucci bag, but a more modest bag – genuinely used only for work purposes – should be claimable. A work briefcase, satchel or backpack should also be claimable.

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