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It's worth considering our list of a few of the great tax myths and the realities before you lodge your return / File Source: Supplied
SO a bloke at a barbecue told you that he claims his Foxtel payments on his tax every year and he can't believe that you haven't cottoned on to it. You can't either! It's a tidy sum and would come in handy for reducing your tax liability so will you go ahead and put it through this year?
You can’t either! It’s a tidy sum and would come in handy for reducing your tax liability … so will you go ahead and put it through this year?
Before you do anything, it's worth considering our list of a few of the great tax myths. And the realities.
Myth one: When you donate $100 to charity, you get $100 off your tax.
Reality: When you donate to charity and receive that "tax deductible" receipt for $100, the most that you can save on your tax is $46.50, and that’s assuming that you’re paying tax at the highest rate. If you're in a lower tax bracket, you’ll save even less.
Myth two: Anything that gets you a tax deduction is a good idea.
Reality: See above. “Many people are conned into investing into activities for the sake of getting a tax deduction,” says Andrew Jeffers, CEO of Aussie Tax Time.
“The most you will save is 46.5 per cent. That's like me asking you to give me $10 and I’ll give you back $4.65. You are still out of pocket.”
The moral is to make sure that your tax saving is not costing you money.
Myth three: An allowance is 100 per cent tax deductible.
Reality: “People often think that just because they receive an allowance that it's 100 per cent tax deductible,” says Mr Jeffers. “Or, worse still, that they do not need to include it in their income. They do. “
As an example, a person who receives a $15,000 car allowance may not be able to claim the full $15,000. They may only be able to claim $12,000 assuming they kept appropriate records (log book, receipts). “They then include $15,000 in their return as income and $12,000 as expenses,” says Mr Jeffers. “They still need to pay tax on $3000.”
It’s important to check out whether you need to keep records to claim your allowance. Some allowances are exempt, if they’re part of a bonafide award (uniforms, food etc), but others are not.
Myth four: I automatically get $300 worth of tax deductions.
Reality: You can claim up to $300 without receipts, but you must have spent the money. Keep receipts for everything. You don’t have to substantiate up to $300, but as soon as you go to $301 you have to substantiate the lot.
Myth five: Travel to and from work, or between offices, is tax deductible.
Reality: Travel to and from work is, as a rule, not deductible. It's a personal expense.
“Travel to and from work is only deductible when you are required to carry/cart bulky equipment to and from your workplace,” says Jason Cunningham, accountant (CPA) and author of ‘Where’s My Money?”
“A tradesman with a number of tools is a perfect example.”
The other myth is that if you set up a home office and also have an office elsewhere then it's deductible as work to work travel.
“It doesn't work that way,” says Mr Jeffers.
“The ATO tends to frown on a home office if you have an office elsewhere.
You cannot claim travel between the two. Also if you only work from home I suggest to my clients that they take a photo of the setup. It proves legitimacy should it ever be questioned.
And if you own the house and decide to claim expenses such as interest for the office portion then you could be opening up a capital gains tax issues. Get some advice.”
Myth six: I can claim the dry cleaning of my suits – it's my "uniform"
Reality: The only time that clothing is tax deductible is when it’s protective clothing or a uniform with a company logo on it. You may feel as though your suit is a ‘uniform’, but for taxation purposes, it’s not.
Myth seven: I can claim dinner when I'm with a client.
Reality: “It's not tax deductible to take a client out for lunch or dinner– if you claim meals or entertainment as a deduction, you’ll be liable for Fringe Benefits Tax,” says Mr Cunningham.
"It's better to ask the client to take part in in-house dining, where they come to your office.”
Myth eight: Negative gearing is a magical cure-all for tax problems.
Reality: “Negative gearing can be fantastic,” says Mr Jeffers. “Assuming you’re earning a lot of money and you're on the top tax rate.”
If you're not and you're finding that coping with the expenses associated with an investment property are causing a drain on your finances, ask yourself if it’s worth it. “If you’re on a 30 per cent tax rate, ask yourself if it’s worth it for a 30 per cent deduction,” says Mr Jeffers.
See myths one and two.
Myth nine: Tax is not my area – I’ll just leave it all to my accountant.
Reality: You are the person signing your return. You are the one liable if the ATO take umbrage with any or all of it. You need to understand what you’re signing. Don’t blindly trust.
Myth ten: I can claim Foxtel.
Reality: Back to that barbecue talk. The truth is that every person’s financial situation is different. The information about Foxtel may not apply to you.
“Maintain a healthy scepticism about what you hear and take that information back to a competent accountant,” says Mr Jeffers. “You need the whole story, not half of it – which is what you might be hearing.”
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