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Etax online – the most common mistakes made by taxpayers lodging their own tax

October 26th, 2014

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Etax online – the most common mistakes made by taxpayers lodging their own tax

Taxpayers choosing to lodge their own tax online through software providers such as etax is on the rise.  If you’re going to ditch your accountant and take control of your own tax affairs then it’s important you understand the risks involved.

Read on for some of the most common mistakes made by those lodging their own tax online:

1. Using the pre fill function in etax online before all the information has been made available to the ATO. 

I recommend not lodging your tax return too early if you’re going to use etax online.  Especially if you’re going to use the pre fill function which allows you to download your data directly from the ATO into your tax return.  Information such as interest earned on your bank accounts and PAYG summaries issued from employers can take a number of weeks to show up in the ATO pre filling information.  The Tax Office uses the pre filling information to data match against the information in your tax return.  If there is a discrepancy you will get audited.

 It’s imperative that if you use and rely on the pre fill function in etax that you double check to make sure all the information is there and correct.

2. Getting the Medicare question wrong.

Perhaps the most confusing part of online DIY tax returns is the Medicare and Private Health question.  These questions are particularly important now that the private health government rebate is scaled according to your taxable income.  Pay particular attention to this question making sure you read and answer correctly.  If you have private hospital or extras cover then it’s extremely important that you wait for your end of year tax statements to come in the mail before you lodge your tax return.  Copy the details into your tax return exactly as they appear on your end of year statement.

 If you’re unsure about this question phone the Tax Office and ask them to help you through it.  This question gets data matched by the ATO.  If there are discrepancies then you may be audited.

3. Not making use of private rulings.

Private rulings are issued by the Tax Office and provide advice based on a taxpayers individual circumstances.  For example, if you are unsure whether you’re eligible for a tax deduction you can fill in the private ruling form detailing your circumstances and the tax deduction you wish to claim.  The Tax Office will write back to you letting you know if you’re eligible to claim the tax deduction based on the information you have provided.  This private binding ruling will give you full protection in the event of an audit.

If you’re lodging your own tax online then there is a much higher chance of getting audited.  It’s important that you make the most of private rulings.

4. Not keeping the correct substantiation.

Not all tax deductions require the taxpayer to keep a receipt.  There are different substantiation rules for motor vehicle expenses and overnight travel expenses.  Up to $200 of small items costing less than $10 each can be recorded in a diary rather than keeping receipts.  If you’re using the commissioner’s estimate to claim laundry expenses then you can claim up to $150 without the need to keep written evidence.  You must, however, keep a diary showing how you calculated your claim.  If you’re claiming less than $300 of work related expenses in your tax return then you will not need to keep receipts.  Note this $300 cap includes laundry.

 As you can see from the paragraph above, substantiation rules are complicated.  The Tax Office will show no mercy in the event of an audit if you have not kept the correct substantiation for the tax deductions you have claimed.  Make sure you read up on your substantiation requirements before you lodge your tax return.

5. Not claiming all the tax deductions you’re entitled to.

It costs on average $120 to get an individual tax return lodged through a registered tax agent.  After claiming a tax deduction for this fee the average tax payer is only really paying $80 to lodge their tax with a professional.

To put the above statement in perspective – a taxpayer on an average income only has to miss ONE $200 tax deduction when lodging their own tax online and they are absolutely no better off financially by self-lodging.  Not only that, but they are on their own in the event of an audit!

 

Lodging your own tax online will certainly save you some money, but make sure you are claiming all the tax deductions you’re entitled to or it defeats the purpose.

At the end of the day taking control of your own tax affairs does not give you a free ticket to play dumb.  The Tax Office won’t expect you to become a tax expert, but they will expect you to know the basics behind the claims you’re making.  Lodging your own tax online can be very rewarding.  Just make sure you do your research, keep appropriate substantiation and if in doubt phone the Tax Office for help.

Did you like this article?  Why not download our free book!

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Online Tax Returns

This tax book includes information on:

                • the top mistakes taxpayers make when lodging their own tax online through e-tax and other online return providers
                • get tips on avoiding an audit
                • get tips on how to maximise your tax refund

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