Given we're now in the middle of July, tax season is in full swing. The Australian Taxation Office (ATO) has been accepting individual tax returns since 1 July. If you haven't done your taxes already, you have until 31 October to do so (unless you get an extension).
Most of us are happy to pay our fair share of tax, given that it funds essential services like schools, hospitals, the military, and Medicare. But getting our tax returns right is not always easy, especially for retirees, who might have multiple sources of income and complex superannuation setups.
So today, let's go through three potential 'red flags' to be careful of this tax time, lest you get that dreaded knock on the door from the taxman.
Three ATO red flags to avoid this tax time
Luckily for taxpayers, the ATO usually releases its own 'focus areas' each tax time that it is watching particularly carefully. Our three 'red flags' come straight from that horse's mouth, as it were.
Work-related expenses
If you're retired, you might not think you have to worry about work-related expenses. However, many deductions might fall under this category if you receive dividend income.
There are many expenses you can legitimately claim if you receive investment income from ASX shares. These could include accounting software or perhaps investment news subscriptions.
Make sure you chat to a tax expert about which of these is appropriate for your situation. You want to make sure you claim everything that you can, while also being careful not to overextend.
Rental properties in ATO crosshairs
Many retirees have investment properties that help fund their retirements. This is a key area for the ATO, which is warning property owners to be vigilant about what they are claiming.
ATO Assistant Commissioner Rob Thomson had this warning for landlords:
We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we're keeping a close eye on this. This year, we're particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit.
With the ATO estimating that nine out of every ten rental property owners make incorrect filings on their tax returns, this is another area you might want to consult your expert about.
Be patient with your filing
Many taxpayers can't wait to file their returns at the earliest possible convenience, and do so right on 1 July. Whilst it's understandable to want that refund cheque, the ATO tells us that we should all cool our jets and hold off before filing.
Here's some of what Thomson said about that:
We see lots of mistakes in July where people have forgotten to include interest from banks, dividend income, payments from other government agencies and private health insurers… By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO.
These days, the ATO receives a lot of data from third parties such as banks, share registries, cryptocurrency exchanges, insurance providers, and Airbnb.
Retirees are likely to have more of this data to wait on, given they often have multiple streams of income and have self-managed super funds.
This data can take a while to come through as 'pre-filled' data on our returns. As Thomson suggests, it's probably a good idea to wait for most, if not all, of this data to come through, lest you make a mistake in your rush to get your return in early. A few extra days of waiting could save you quite a headache down the road.
