According to the Tax Office, there are 12.6 million individual taxpayes of which 72% lodge a return through a tax agent. Here are some common mistakes made by many occupation groups.

Work-related deductions

• Do you have appropriate documentation to support motor vehicle and trave expenses?

For example, have you maintained a travel diary to support travel which is six days or more? Has a correctly compiled log book been kept where the ‘log book method’ has been used to claim related car expenses?

• Have you correctly claimed travel expenses or motor vehicle expenses where you are required to travel from home to work more than once a day?

• Do you satisfy the relevant conditions in order to claim a tax deduction for motor vehicle expenses where you have been carrying bulky equipment?

Note: In most case, travel between work and home multiple times during the day and the transportation of bulky equipment would generally result in a deduction being available where the travel is fundamentally part of the employee’s work and the employee has no fixed place of employment.

• Have you considered the rules with respect to claiming home office, mobile phone and internet expenses?

For example, mobile phone expenses will need to be apportioned with regard to the itemised account, detailing work and non-work related calls against total cost (even if the fees are capped). If you are claiming home office expenses, has a distinction been drawn between a home office which is merely used as a convenient location to carry out particular duties and a home office which would be considered a place of business?

Taxwise has prepared a number of mini-series’ to help you understand what you are entitled to claim. Click to follow the link if you are an engineer, nurse, teacher, mechanic, hairdresser or defence force member.

Undisclosed income

Investment income

If you own shares or investment property, have you correctly included:

• rental income
• dividend income, and
• capital gains from sale of assets?

Employee related payments

If you are an executive or director, have you correctly included as income:

• benefits from overseas employee share or bonus schemes, and
• income from employee share plans?

The Tax Office has indicated that it will review tax ministrations strategies used by individuals with income over $1 million, including alienation of personal services income and the claiming of large deductions and credits.

Superannuation

Personal contributions

Have personal superannuation contributions been properly claimed? You may claim personal contribution if:

• they satisfy the maximum earnings test (ie. the 10% rule), and
• the notice of intention to deduct contributions is provided to the trustee.

Contribution caps

Have you ensured that contributions made to your superannuation are within superannuation caps?

The Tax Office will follow-up with those who have exceeded caps and raise assessments where necessary. They have also stated that they will continue to monitor taxpayers who may have illegally accessed superannuation savings before retirement (as indicated by 1,100 audits conducted during 2009-10).

For more information, or help in preparing you tax return, contact Taxwise on (08)  9248 8124.

What questions do I have to ask my client when I prepare their tax return?
You need to ask reasonable and direct questions to get the information necessary for you to ascertain the correct income position and what deduction and tax offset claims can legitimately be made. In relation to deductions, you should ask the client whether the expenditure has been incurred and sufficient further questions to determine whether the expenditure is allowable as a tax deduction. Where the substantiation rules apply, you should also ask what evidence does the client have available that is necessary (for example, receipts) to support the deduction being made.

Do I have to sight the relevant receipts and records?
It is not essential to sight the receipts and records but, if they are available, they should be examined as part of the tax return preparation process. It is good professional practice to request from a client all relevant documentation relating to their claims, noting both what you have seen and what evidence the client advises you he has, but not produced to you.

When preparing a tax return for a client, do I have to conduct a ‘tax audit’ to ensure that the tax return is correct?
No – when preparing tax returns, tax agents are expected to adopt reasonable professional care. You should ask sufficient questions to obtain the relevant information necessary to prepare the tax return. However, tax agents have to rely on the accuracy of the information provided to them by their clients.

What if a client will not produce the records but maintains that the expenditure has been incurred and the records exist?
If you have good reason to believe that the client is seeking to make a false claim or omitting income, you should carefully consider whether or not to continue to be associated with the preparation of that tax return. If, on the other hand, you have reasonably ascertained what records the client has to support the claims being made, and you have no good reason to doubt the accuracy of the information provided, you may rely on that information when preparing the tax return. In relation to deduction items, you should carefully advise the client of the relevant substantiation rules or other requirements to support the claim and point out the significance of the declaration they have to sign on the tax return.

Can I include in a tax return a claim that is clearly not allowable?
No – the government policy embodied in the legislation is quite clear. Paragraph 251 K(2)(a) of the Income Tax Assessment Act 1936 provides that a Tax Agents’ Board may cancel an agent’s registration where they knowingly include on a tax return an item that is false in any material particular. Further guidance has been given by Hill J in the Federal Court in Stasos v. Tax Agents’ Board of New South Wales 90 ATC 4950; (1990) 21 ATR 974 where he said in 90 ATC 4950 at p. 4959 and in 21 ATR 974 at p. 984:

“In addition to the tax agent dealing with his clients, he will, almost invariably have dealings with officers of the Australian Taxation Office and perhaps the boards and tribunals to which I have already referred. Those dealings must be able to be carried on in an atmosphere of mutual trust. The Commissioner and his officers must be able to accept that, to the best of the ability of the tax agent, returns that have been prepared are true and accurate. This is particularly so now that the Commissioner has proceeded to a system of self assessment, with inaccuracies only coming to light in the case of random audit or, presumably, other information coming to the hands of the Commissioner.”

This means that a tax agent cannot include on a tax return a claim where they know that the relevant expenditure has not been incurred or is not allowable. Also, for example, a tax agent cannot include a claim for total work-related expenses, other than car, meal allowance, award transport payments allowance and travel allowance expenses, that exceeds $300 if they have not reasonably ascertained that the client has kept evidence to prove the total amount.

What should I do if a client instructs me to include a false claim on a tax return?
You should advise the client of their responsibility to lodge a correct tax return and of the consequences should a false tax return be lodged and subsequently audited. You should also explain your responsibility as a professional registered tax agent. You should try to persuade the client to exclude any false claim, and if they subsequently insist on lodging a false tax return, you or your staff should have nothing further to do with the preparation of that tax return.

If you’re a small business with an annual turnover of less than $2 million you may qualify for the extra 50% business tax break on eligible assets. But how do you know what is eligible?

Meet Maria, a small business owner who wants to buy a new computer for her shop. She wants to know – Is the computer eligible for the extra 50% tax break? What about software? By when does she have to buy it and by when does she need to start using it to get the extra deduction? How much will her deduction be?

After phoning Taxwise, she knows the computer is eligible as long as it is new, costs more than $1,000, is purchased by 31 December 2009 and is installed or first used by 31 December 2010. Assets must be tangible and as software is not a tangible asset it is not eligible for the tax break.

Maria buys the computer for $2,400 (excluding GST and the cost of the software used on the computer). She will be able to claim an additional $1,200 tax deduction (50% of $2,400) in her business income tax return for the year in which she installed or first used the computer. This is in addition to the decline in value deductions she would normally claim for such business assets.

After applying the 30% company tax rate (the rate which applies to Maria’s business), this tax deduction would reduce the amount of tax Maria’s business would have to pay by $360.

If you’re like Maria and thinking about taking advantage of the business tax break, you need to check the facts before you buy. Phone Taxwise on 9248 8124.

Thinking of starting a business.

If your thinking about starting your own business there are important decisions you need to make.
For example;

• what type of business should you start?
• will it be a business or just a hobby?
• what do you need to do before you start?
• do you need a business plan?
• are you really ready to start a new business?
• what financial information do you need?
• will you need an Australian business number?
• will you have a tax responsibilities?

At this stage of your business life cycle, it’s important to think about, understand and plan your business tax needs. Time spent now will help you manage your tax obligations when you start your business and make the right decisions.

Starting your business.

When you start your business, you need to consider tax to get your business off to a good start. For example, do you know:

• what records you need to keep and how to set up a record keeping system?
• how goods and services tax (GST) works?
• what you need to report in your tax return?
• what deductions you are entitled to claim?
• how often you have to lodge you business activity statement (BAS)?
• how to pay your tax?
• how working from home may affect your tax?

 
Running your business.

As your business grows and changes you need to be aware of how your tax obligations may also change. For example, do you know:

• how to change your business structure?
• what changes when you have employees?
• how pay as you go (PAYG) withholding works?
• you have to pay super for employees?
• how to pay fringe benefits tax (FBT)?
• how to treat payments you make to independent contractors?
• how to work with the ATO electronically?

 
Ceasing your business.

You need to tell the ATO if you’re affected by the following:

• you have ceased trading altogether
• you are registered to operate a business but you’ve never traded
• you have sold or transferred ownership of your business

To tell the ATO you’re no longer in business:

• phone the ATO on 13 28 66 between 8:00am and 6:00pm, Monday to Friday, or
• If you have a digital certificate, you may cancel your ABN online at www.abr.gov.au

Online cancellation is fast and secure, and your cancellation details will usually be updated within 24 hours.

What to do next.

Contact Taxwise on 9248 8124

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW in the Opt In Box located on the top right hand side of this article. 

Overview

If you have assessable income from overseas, you must declare it in your Australian income tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.

Different rules apply for income periods up to 30 June 2008.

You can claim a tax offset for the foreign tax you have paid on income or gains (including gains of a capital nature), that are included in your assessable income. In some circumstances the offset is subject to a limit.

To be entitled to a foreign income tax offset:

• you must have actually paid an amount of foreign income tax, and
• the income or gain on which you paid foreign income tax must be included in your assessable income for Australian income tax purposes.

Differences between the Australian and foreign tax systems may lead to you paying foreign income tax in a different income year from that in which the income or gain is included in your assessable income for Australian income tax purposes. You could have paid the foreign tax in an earlier or later income year; however, the offset can only be claimed after the foreign tax is paid.

If you paid foreign income tax after the year in which the related income or gains have been included in your Australian tax return, you can claim the offset by lodging an amended assessment for that year. You have up to four years to request an amendment to your assessment from the date you paid the foreign income tax or there was an increase or reduction in the amount of foreign income tax you paid that counts towards the offset.

The foreign income tax offset applies to foreign income tax imposed on all forms of income, profits and gains, (including gains of a capital nature) and all taxpayers, whether individuals or other entity types. Note that:

• While the offset mainly applies to Australian resident taxpayers, in the limited circumstances where the foreign income of a foreign/non-resident is taxed as assessable income in Australia, they may be able to claim the offset.
• In very limited circumstances, foreign tax imposed on Australian source income may count towards a foreign income tax offset.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW in the Opt In Box located on the top right hand side of this article.

Making a claim

When you can make a claim

In most situations, you can claim deductions for work-related expenses as long as your claim meets the following conditions:

• you incurred the expense in doing your job
• the expense is not private (for example, travel to and from work, and most meals)
• you can show you incurred the expense by producing receipts or other written evidence unless an exception applies.

However, there are some instances where you have to meet other conditions, some of which are mentioned below.

Claim the correct amount for the year

You must have incurred the expense in the year you are claiming the deduction, unless the expense relates to the decline in value (depreciation) of tools or equipment you purchased.

When claiming the decline in value of your tools or equipment, you must have used them or had them available for use in the year you are making the claim.

You can only claim that part of an expense that relates to your work.

Remember

• When you complete the declaration on your tax return you are declaring that everything you have told us is true and you can support your claims with written evidence.
• You are responsible for providing proof of your expenses, even if you use a registered tax agent.

 
Reimbursements and Allowances
   
If your employer or any other person reimburses you for expenses you have actually incurred, the payment is called a reimbursement. An allowance is not considered to be a reimbursement.
    
You cannot claim a deduction for expenses you incur if those expenses are reimbursed to you by your employer – you do not include a reimbursement on your tax return.
   
If you claim your motor vehicle expenses from your employer using the cents per kilometre method, the amount you receive is considered to be an allowance.
   
Regardless of the amount of an allowance you receive, you can only claim a deduction for the expenses you paid. That is, if you paid $80 in work-related expenses and you received a $100 allowance for those expenses, you can still only claim $80.
    
Note: If you receive a car allowance or an award transport payment from your employer, you must record the amount you received on your tax return as income at item 2.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW  in the Opt In Box located on the top right hand side of this article.

As an employee, there are things you need to know to meet your tax obligations and claim your entitlements correctly.

Income

Did you know…

Even if you didn’t receive a payment summary, you need to include your total income from all of your jobs on your tax return. It doesn’t matter if you worked full-time, part-time or on a casual basis.

Income includes;

• salary and wages
• commissions
• bonuses
• tips
• gratuities
• jury attendance fees
• income from sickness and accident insurance policies
• income from Centrelink
• investment income from bank deposits and shares.

Expenses

Did you know…

• travel between your home and your workplace
• expenses for a uniform consisting of conventional clothing like a black skirt and white shirt or blouse
• self-education expenses where the course you are undertaking does not have sufficient connection to your current employment.

• paper or electronic copies of documents, such as invoices, receipts or delivery notes
• statements from financial institutions, such as credit card statements
• BPAY® receipt numbers
• PAYG payment summaries
• warranty documents.

Why do we pay tax?

Tax is money people and businesses pay to the government to provide services to the community such as health, education, defence, roads and railways, social security and welfare.

We collect Commonwealth taxes for the government such as income tax. However, state and local government organisations collect other taxes and rates for each Australian state or territory.

Tax rates for individuals.

These are the rates of income tax you have to pay if you’re:

• An Australian resident for the full 2009-10 income year (1 July 2009 – 30 June 2010), and
  
• Entitled to the $6,000 tax-free threshold.

If you’re an Australian resident for tax purposes, you must declare all income you earn both in Australia and internationally. To help work out if you’re a resident for tax purposes contact Taxwise on 9248 8124.

Tax file numbers.

A tax file number (TFN) is a unique number the ATO gives to individuals and organisations for identification and record-keeping purposes.

If you plan to earn money in Australia, we recommend you apply for a TFN, regardless of your age. If you don’t give your TFN to your employer within 28 days of starting your new job, your employer will have to pay 46.5% of the money you earn from them to the ATO.

Remember: You should only give your TFN to your employer after you start working for them. Never give your TFN when you fill out a job application or when you apply for work on the internet or over the phone.

Also, make sure your super fund has your TFN. If they don’t, they’ll have to pay extra tax on some of the super paid into your account and they won’t be able to accept some types of super contributions. This means they may take the extra tax out of your super account.

To find out whether your super fund has your TFN, check your statement from your fund or contact them.

How to apply for a TFN.

If you’re a secondary school student, you can apply for a TFN through your school if it participates in the ATO’s School Education Program. You can also obtain an application from:

• One of the ATO’s shopfronts
• The ATO website: http://www.ato.gov.au/youth/content.asp?doc=/content/40962.htm
• A Centrelink office.

When you apply, you need to provide original, unaltered documents proving your identity. The TFN application lists the types of documents that are accepted.

If you apply in person or by mail, it will take up to 28 days for the ATO to process your application and send your TFN to you.

Tax returns.

A tax return is a form you use to report your income to the ATO. Your income includes any of the following for an income year:

• capital gains
  
• tax withheld from payments your receive
  
• deductions and tax offsets.
  
• As an individual, you need to lodge an income tax return if:
  
• you pay tax during the income year
  
• your taxable income is more than
  
  • $6,000, if you’re an Australian resident for tax purposes for the full year
    
  • $3,000, if you’re under 18 years of age at 30 June 2010 and your income was not salary or wages
    
  • $1, if you’re a non-resident and you have income taxable in Australia – excluding income that had non-resident withholding tax withheld from it 
    
• you receive a Centrelink allowance or payment (other than a pension or pension-type payment) and you receive other income, and your taxable income was more than $14,000.

Once the ATO receives and processes your tax return, they will send you a Notice of Assessment to let you know the outcome of the assessment.

When to lodge a tax return.

You only have from 1 July to 31 October to lodge your tax return unless Taxwise prepares and lodges it for you.

If, due to circumstances beyond your control, you cannot lodge your tax return by 31 October, phone Taxwise on 9248 8124 as soon as possible (before 31 October) to find out if we can lodge for you at a later date.

The ATO only considers your tax return to be lodged on the day they receive it if it’s complete. If it’s incomplete – for example, if you don’t sign it – they may send it back to you.

Remember, if you don’t lodge your tax return on time, you may incur a penalty.

Ways to lodge a tax return.

Contact Taxwise on 9248 8124 to organise a tax specialist to help you pay less tax.

Claiming work-related expenses.

You may be able to claim some of your work-related expenses as a deduction on your tax return. However, you can only do so if you can show:

• you incurred the expense in the course of earning your assessable income, and
• how you worked out the amount you’re claiming.

If you make a mistake on your tax return.

If you complete and lodge your tax return and then later find you made a mistake after the ATO sent you your Notice of assessment you can write to them and ask the ATO to amend your assessment. This usually takes a maximum of 56 days (about eight weeks) to process.

You can ask the ATO to amend your assessment if you:

• forgot to include some assessable income – for example Centrelink payments
• forgot to claim an allowable deduction
• filled out a question incorrectly
• forgot to fill out a question.
  

Record keeping.

You should keep all the records you used to prepare your tax return including:

• payment summaries from employers or organisations you receive money from, including Centrelink
• bank statements showing bank interest you received
• dividend statements.
  

If you claim deductions, you also need to keep written evidence to prove claims for those deductions.

You need to keep your records for five years from when you lodge your tax return.

More information.

Contact Taxwise on 9248 8124.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW  in the Opt In Box located on the top right hand side of this article.

You need to pay super for all eligible employees at least once every financial quarter, by the 28th day of the month following the end of the quarter. This is the last day that you can pay a super contribution to an employee’s super fund before you are liable for the super guarantee charge. If you do not pay at least the minimum amount of super to the correct super fund, you’ll need to lodge a Superannuation guarantee charge statement – quarterly.

The Government has announced an investment tax break for business. The Bill has been passed by Parliament and is awaiting Royal Assent.

The tax break, in the form of an investment allowance, will provide:

• Small business entities (turnover of less than $2 million a year):

• Other business entities (turnover of $2 million or more a year):     
  
  • an additional tax deduction of 30 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 13 December 2008 and 30 June 2009 and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state on or before 30 June 2010.
       
  • an additional tax deduction of 10 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 13 December 2008 and 30 June 2009 and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state between 1 July 2010 and 31 December 2010.
          
  • an additional tax deduction of 10 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 1 July 2009 and 31 December 2009 and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state on or before 31 December 2010.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW  in the Opt In Box located on the top right hand side of this article.