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.Similar Posts:

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The following letter, titled Tax time processing and refunds provides you with the latest information about current ATO processing.

10 August 2010

Dear tax practitioners

Tax time 2010 processing and refunds for your clients

On the 28 June 2010 the Commissioner wrote to you seeking your assistance in managing your clients’ expectations on the processing of their income tax return, in the lead up to this year’s tax time.

As is normally the case the ATO aims to process income tax returns in a way that balances the need to achieve good service standards for taxpayers while maintaining the integrity of our tax and superannuation systems.

It has been raised with me that there is concern that some of your clients have yet to receive their refunds, despite you having lodged their 2010 income tax return with the ATO in July.

I can confirm that while there have been a significant number and amount of refunds issued, there does remain a number of returns still going through our processing and verification actions. This is normal during this period every financial year. It should be remembered these verifications may be for a variety of reasons.

While our processing times are often shorter than our published service standards, it is important that tax agents and taxpayers do not rely on any expectation for processing of electronically filed returns in less than 14 days. This is particularly important for agents who use taxpayers’ refunds as payment for their fees.

Up to 29 July 2010, the ATO had issued more than 1.25 million notices of assessment, including just over 1.04 million refunds. By Friday 6 August, we had finalised a further 800,000 assessments, the vast majority resulted in electronic funds transfer (EFT) payments. As these refunds issue this week, the ATO will have paid out over $4 billion in
refunds and issued some 1.9 million refunds since 9 July 2010.

As is the case every year, we could not begin processing returns straight away, because we had to test the new software installed for the 2010-2011 year. This happens every year because it is necessary to install new software for any changes in the tax laws. This year, we did not begin processing income tax returns until 9 July 2010. If you lodged
your return prior to this date, processing would have been delayed.

As previously advised, up until 23 July 2010, there had been delays with the processing of returns for taxpayers who have Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFSS) obligations. We needed to carry out extended testing of the accuracy of assessments for these returns. Processing of these returns
commenced on 23 July 2010, therefore, if you filed a return before 23 July 2010 and you had a HELP or SFSS obligation, your assessment would take longer to complete.

During the week commencing 2 August 2010, we had more returns on hand than we were able to process. While refunds were issued most days, with some catch up processing, we were able to finalise an additional 800,000 assessments by Friday 6 August 2010. The majority of these refunds are now available in bank accounts or on their way via Australia Post.

Overall, the regular flow of assessments and refunds has not been as consistent during our first four weeks of processing as we would have liked and we are taking steps to smooth out these fluctuations.

This letter may assist you to advise your clients of the current situation.

We apologise for any inconvenience these delays may have caused to you and your clients.

Yours sincerely

James O’Halloran
Deputy Commissioner

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The account balance cap

The account balance cap on first home saver accounts is indexed periodically in $5,000 increments.

The maximum annual government contribution

The maximum annual government contribution is based on the contribution threshold that is indexed periodically in $500 increments.

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In 2008, the government passed legislation to ensure that same-sex couples and families are
treated the same way as other couples and families for income tax and superannuation purposes.

The legislation expanded key terms such as ’spouse‘ and ‘child‘ to recognise the relationships of same-sex couples and their children.

These changes may affect the information that you need to provide in your income tax return.

Income tax impacts

The income tax changes mean that you may now be eligible for the following tax offsets:

• Spouse (without dependent child or student), child-housekeeper or housekeeper.
• Parent, spouse’s parent or invalid relative.
• 20% tax offset on net medical expenses over the threshold amount.

If you have a spouse, this may affect your claim for:

• senior Australians (includes age pensioners, service pensioners and self-funded retirees) tax offset, or
• pensioner tax offset.

It may also affect your claim for a zone or overseas forces tax offset.

You still need to meet other criteria to be eligible for these tax offsets.

These changes may also affect your access to:

• an Education tax refund
• a family trust election

If your relationship ends, the changes also affect your access to:

• Capital gains tax rollover relief
• First home saver account contributions made by your former spouse

Recognition of a same-sex relationship may also affect:

• your liability for:
  • Medicare levy reduction or exemption
  • Medicare levy surcharge
• those who are classed as ‘associates’ for personal services income purposes

New definitions

What is the definition of a spouse?

Your spouse includes another person (whether of the same or opposite sex):

• who you were in a relationship with that was registered under a prescribed State or Territory law, or
• who, although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.

What is the definition of a child?

Each of the following is also the child of an individual:

• the individual’s adopted child, stepchild or ex-nuptial chid
• a child of the individual’s spouse
• someone who is a child of the individual within the meaning of the Family Law Act 1975.

Common questions

What relationships are impacted?

Both de facto relationships and registered relationships are now recognised.

A de facto relationship is where two people who are not legally married live together on a genuine domestic basis in a relationship as a couple.

A registered relationship is one that is registered under certain prescribed state and territory laws that provide for registration of relationships. Currently, Victoria, Tasmania and the Australian Capital Territory provide for the registration of a relationship.

When were the changes implemented?

The changes to recognise same-sex relationships took effect for superannuation purposes on 1 July 2008 and for Income tax purposes from 1 July 2009.

Why does the ATO need to ask my gender?

There are times when we will ask you to nominate:

• your salutation (Miss, Mrs, Ms, Mr or other)
• your gender (male or female)
• your spouse’s gender (male or female).

This may be to:

• establish proof of your identity
• consent to repay your spouse’s Family Assistance Office (FAO) debt
• transfer any unused portion of the senior Australian tax offset (SATO) to your spouse
• transfer any unused portion of the pensioner tax offset (PTO) to your spouse.

Currently the age pension age is different for males and females and one of the conditions of entitlement to receive a transfer of any unused portion of SATO or PTO is to be the age pension age for your gender.

How should I complete my tax return if I am still married but now in a genuine same-sex de facto relationship?

Generally, you should complete your income tax return based on your domestic situation on 30 June of the relevant financial year.

Example:

Adam is married to Tanya but separated from Tanya to move in with David. Since that time Adam and David have been living together in a genuine domestic relationship as a couple. Prior to separating from Tanya, Adam completed his income tax return recognising Tanya as his spouse while David completed his income tax return as a single person. From 1 July 2009, both Adam and David will complete their income tax returns recognising each other as a spouse.

What happens if our same-sex relationship ends?

From 1 July 2009, a person who was in a same-sex relationship may be recognised as a ‘former spouse’ under a ‘family law obligation‘. This means that you may be eligible for:

• capital gain tax (CGT) rollover relief if the family home was transferred to you as part of a relationship breakdown settlement, and
• a share of the first home saver account contributions made by you while you were living together in a genuine domestic relationship as a couple.

Example:

Richard and Damian have lived together as a couple in Canberra since March 2006. In 2007 they purchased their joint home and in 2009, when the Australian Capital Territory Government passed legislation, allowing same-sex couples to register their relationship, they were among the first to formally recognise their union. Richard and Damian separated during the financial year 2009-10 (after 1 July 2009). Damian wished to remain in the home and negotiated with Richard to transfer his share as part of the relationship breakdown settlement.

As the transfer date of the property from Richard to Damian (the transferee spouse) was after 1 July 2009, Damian will be able to apply for CGT rollover relief.

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Having an ABN doesn’t necessarily mean a worker is a contractor. Key factors in deciding whether a worker is an employee or a contractor are:

• the degree of control you can exercise over their work
• whether the worker is being paid for the time they work or for the result of the work

Click back next week for more information.Similar Posts:

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With the introduction of the new Tax Agent Services Act 2009 there are benefits to taxpayers who use a registered tax agent or BAS agent. If you are paying someone to do your BAS, make sure they are registered.

The new law includes a Code of Professional Conduct which aims to ensure services provided to you, by registered agents, meet appropriate ethical and professional standards.

Taxpayers are further protected by safe harbour provisions which may guard you from administrative penalties, where your agent did not take reasonable care.Similar Posts:

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Tax Laws Amendment (2010 Measures No. 1) Act 2010 was recently passed by Parliament and has received royal assent. The new laws apply from 1 July 2009.

The government will apply an income test to the eligibility criteria for the entrepreneurs’ tax offset (ETO) to more appropriately target the offset towards genuine small, micro and home-based businesses.

The income test restricts access to the ETO for businesses with high alternative sources of household income (that is, income not referable to the relevant small business).

The ETO currently provides a 25% income tax liability tax offset for small businesses with an annual turnover of $75,000 or less, phasing out from a turnover of $50,000.

Under the new income test, the ETO amount will be reduced where the income test amount exceeds the following thresholds:

• $70,000 for singles
• $120,000 for families.

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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.Similar Posts:

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Be Warned… The Australian Tax Office is now targeting School Teachers in Australia in a crackdown on ILLEGAL work related expenses…

Last year 178,000 plumbers, concreters, electricians, sales and marketing managers, university lecturers and truck drivers were under the spotlight and their work-related claims were slashed by $40 million at an average of $226 per taxpayer.

This year, it’s the turn of Teachers.

In 2010, TEACHERS as well as mechanics and engineers have been warned they are the taxman’s top three targets this year. In a recent article in The Herald Sun, Tax office second commissioner Bruce Quigley stated “the tax office was able to use information held by third parties to check 500 million transactions without most taxpayers ever knowing. We do this with an invisible hand that most compliant taxpayers would never need to be aware of,”.

As a teacher, are you prepared to run the gauntlet of the taxman? Are YOU prepared to run the risk of non-compliance… and be subject to LESS money in your pocket PLUS fines and penalties that could leave you in considerable DEBT!

So what can you do about it?

Well, the number 1 recommendation is to use a registered tax agent in Australia who is up to date with taxation rules and regulations, ideally one that specializes in Teachers Tax Returns

You can get more information on that at www.TaxInfoSite.com.Similar Posts:

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The introduction of our new income tax processing system has inevitably impacted both taxpayers and tax agents. I apologise if you waited longer than usual for your notice of assessment and/or refund.

I would like to especially thank tax agents for their patience and support while we completed this essential work. Without knowing each individual circumstance, I am not aware of situations where agents have been holding things up. Rather, they have been working with us to ensure the impacts on their clients have been minimised.

If you are due a refund and we have taken longer than 30 days since your return was lodged to issue a notice of assessment, you are entitled to interest.

The introduction of our new system was a one-off event, replacing a system more than 30 years old, and vital to the future of the administration of the community’s tax system. Unfortunately, there is no time of year we could do this without impacting taxpayers and agents.

It was a huge task and the single biggest upgrade we have ever done. When we switched from the old system to the new we converted 27 million taxpayer records, 32 million accounts and 282 million forms. To do this, we had to stop processing tax returns in early 2010.

We chose early in the new calendar year as we thought it would have the least possible impact. We usually only receive around five per cent of returns during this period, as most people who don’t use an agent must lodge their tax return by 31 October.

Given that income tax returns during this time would be lodged by tax agents, we started communicating with them in the months leading up to the new year about our plans to change over to the new system, providing an opportunity to lodge some refund claims early.

We explained we would need to stop processing tax returns from just before Christmas through to the end of January. We also explained we expected delays through February as we worked through stockpiled returns. Unfortunately we did run into two unanticipated issues with the new system that caused delays outside what we had originally planned.

One delayed matters for two weeks (which also had an impact on returns still coming in to us), and the other resulted in 140,000 refund cheques not printing. However, these cheques were sent last week.

These sorts of things are not unusual when implementing a system of this size, however it added to the time in which we could not process returns. It meant a longer-lasting impact on taxpayers and tax agents than we had originally expected.

Despite the delays, our new system has processed more than two million tax returns, including one million refunds. Since early April we have processed all newly lodged returns as per our service standards (94 per cent of electronic returns in 14 days and 80 per cent of paper returns within 42 days). We took a cautious approach during our ramp up of the processing of returns to ensure the accuracy of the calculations in assessments.

We do not have a stockpile of returns waiting to be processed. However, as is normally the case, there will always be some returns in our system because:

• we need to scrutinise high risk refunds that could indicate fraud
• there is a tax debt owing or an obligation due to the Child Support Agency and/or Centrelink
• there is information missing or incorrect in the return that we need to follow up with the taxpayer or agent, and/or
• people have lodged several years’ worth of outstanding returns with their 2008-09 return.

I assure you we have worked extremely hard to minimise the impact of the new system on tax agents and the community.

I look forward to providing you with improved service into the future.

Yours sincerely

Michael D’Ascenzo
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