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20 Nov 2017

Top Tax Myths for Individuals

Everyone’s heard some tax “truths” right?  Things that everyone knows are right.  Well here’s a few that are more myth than truth!

You can claim a deduction for any clothes you wear for work

Some people can claim the cost of purchasing and laundering clothes for work, but only if they meet certain criteria.  For clothing to be eligible, it must be:

  • protective (steel-capped boots for example);
  • a compulsory work uniform that is uniquely identifiable (such as when it includes a work logo);
  • a non-compulsory work uniform, but only if it has been registered; or
  • occupation-specific clothing that is not every day in nature and is easily recognisable as relating to your occupation.

Having to wear black pants or a suit does not constitute a uniform, even though it might be a requirement for your job.  Before making a claim, check with your accountant or on the ATO’s website to ensure you’re eligible. As a general rule of thumb, if people can’t tell your occupation or your employer based on your clothing, then it’s probably not claimable.

 

You’ll pay more tax on your second job

Sorry, you can’t use this as an excuse to not take that second job!  This myth comes along because when people take up a second job, their take-home pay is usually less than on their first job due to more tax being taken out by their employer.  Put simply, this is because only your first job is allowing for the tax-free threshold when working out your take-home pay (where the first $18,200 you earn is tax-free), whereas your second job calculates your take-home pay by assuming that your tax-free threshold has already been used up.  Sounds complex, but the short and sweet of it is that you’ll pay the same amount of tax overall with two $25,000 jobs as someone with one $50,000 job.

 

I claimed it last year, so it must be OK to claim this year

This one’s a classic!  The ATO doesn’t look at every deduction in every tax return each year – there are hundreds of thousands of tax returns lodged after all!  The ATO systems flag any amounts that seem too high based on your occupation and income.  If your deductions are within certain ranges that they have set for those criteria, they generally won’t look into them in too much detail.  However, if something else brings their attention to you, such as some undeclared investment income or late lodgement, they may then conduct a closer review of your tax returns or commence an audit.

If the ATO do audit you and find you have claimed deductions that you aren’t entitled to, it can be more than just the extra tax you’re hit with. The ATO can also issue fines and charge interest on any underpaid tax.  If they think your false claims classify as fraud, they can even go back as far as they like to look at old tax returns as well.  However, if you have all the receipts for your deductions and your claims are justified, it can often be a simple process to provide this information to the ATO and avoid any trouble.  Remember to talk to your accountant about any deductions or expenses you’re unsure of and look into one of our favourite add-ons Receipt Bank to keep your paper evidence in a central location.