Every year taxpayers gift the government billions of dollars because they simply fail to claim legitimate deductions. That’s right, you could be giving away more money than you need to every year and we are not talking about tax avoidance here. We are talking about claiming money back legally annually that you are entitled to for working hard.
Paying tax is the law in most countries, however the parliamentary committee of Australia and many other similar bodies abroad do not arguably spend government tax revenue as efficiently as possible, so why donate it as willingly as we currently do? If you'd like to know how you can legally reclaim money at the end of each financial year, here's a list of the most under-claimed deductions that accountants see every year.
To help readers retain more money when filing their 2014-15 tax return this year it’s worth knowing that the number one expense that’s overlooked every year is car expenses. Ms Hartman, a consulting accountant from Ban Tacs said, “People don’t claim their motor vehicle enough.”
The second deduction mostly overlooked is time spent in the home office. Every hour earns you a 34¢ deduction, but you need to support this with a diary of your hours for example. “It doesn’t sound like a lot, but it’s usually a couple of hundred dollars for a school teacher,” Ms Bailey continued.
Peter Bembrick, a tax consulting partner at HLB Mann Judd says “Substantiation – that’s the thing people really struggle with.” His answer was to use technology to help. To more efficiently keep record of your tax, logbooks and diaries can be found at etax.com.au whilst smartphone apps like Shoeboxed make it easier to keep records of your receipts.
Legitimate under-claimed deductions
1. Keep a Diary
Claiming for the commute between home and work isn’t possible, but if you visit other sites or functions outside of work then you can claim a minimum of 63¢ per km for up to a maximum of 5,000km. To claim for this activity a tax consultant will require a diary of joureys.
2. Logbook method
To get the maximum deductions back from your work-related car use, by almost twice as much then you need to use the logbook method. This is a record of all your journeys related to work; as a result you will be able to reclaim devaluation of the vehicle. Remember that your detailed logbook must exceed 90 days minimum to qualify.
3. Lugging it around
‘Tradies’ who cant safely store their tools and equipment onsite have the ability to claim their commute. The equipment must be heavier than 20kg to be eligible for deductions.
4. Working from Home
As I mentioned earlier, you can claim 34¢ for each hour spent working in your home office. The office has to be a dedicated room within your home to qualify and a diary must be kept for a minimum of one month.
5. Investment Property Travel
Over 1.8 million taxpayers have some form of investment within property that they earn rental income from. If this is you then you can claim meals and accommodation related to visiting the property, performing repairs and conducting inspections. However, be aware that continuing the trip onto a holiday could get you in trouble.
6. Work Technology
Making work calls from your home phone and personal mobile can be claimed too. Depreciation to your personal computer and tablet is another, along with using your personal home Internet.
7. Cleaning a Uniform
You wont be required to provide receipts for laundry costs up to $150, however it must be a professional uniform. Also certain trades may require you to buy helmets, sun protection and goggles so check whether you can claim for these too in your profession.
8. Accountants Fees
Back in 2005-06 accountants forgot to claim $3 million worth of returns and fees that they had charged clients the year before. Don’t let your accountant forget how much you are paying them!
9. Union Costs
Membership to a union can also be considered a deduction, because the expense is committing you to being part of a professional association.
10. Income Protection Insurance
This is a no-brainer, for many of you earning over $80,000 per annum then you can claim deductions on this insurance cost.
News Limited conducted an analysis of taxpayers and their results revealed that in 2005-06 workers offset 5.59% of their income. However, in 2010-11 workers only offset 4.76%. If workers within our country continued offsetting at the rate in which they were doing so in 2005-06, then we would have claimed back $37 billion in deductions instead of just $31.5 billion.
This means that the average taxpayer gave away $436 in deductions and those on a 30% marginal tax rate threw away a potential refund of $131. It's not entirely your fault though, as the decline is partly due to increased complexity of the tax system, poorer record keeping by taxpayers and more DIY returns.
The regional director of ITP, Scott Bailey said in a statement that as a nation we were collectively getting worse at claiming deductions. Frank Brass, the regional director of H&R Block reciprocated this sentiment by mentioning, “It comes down to a lack of knowledge. People don’t really know what they can claim. But they think they do.”
Whilst all this is going on, you can guarantee that the government is thinking up new ways to complicate the system to continue pushing us towards paying more tax in the future. If you look through the 2013-2014 budget papers, you will see that the Treasury expected a $12.9 billion increase in gross income tax. This is an increase on the year before of 8.6%, which is hugely different compared to the 0.2% increase they expected for refunds.
This is disconcerting, especially as more people are choosing to complete their tax returns themselves. ATO data revealed that the proportion of tax returns submitted by tax agents fell from 77% in 1999-2000 down to 72% in 2010-11.
Julia Hartman, a consulting accountant at Ban Tacs said many clients get annoyed with the questions that they as a company ask, but are always pleased with the refund come the end. “You have to ask all of those questions, people are not good at asking those questions themselves,” Ms Hartman explained further.
Whether you use an accountant or not though, hopefully this post will encourage you to investigate all the possible aspects of the tax laws where you are entitled to claim deductions based on your personal work situation.