Beware of the taxman in 2011

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Dave NaylorBeware of the taxman in 2011- David Naylor 

We have noticed an interesting trend over recent months; the ATO is becoming more aggressive in their approach to collections of revenues and taxes when assessing claims. This could be due to a number of reasons it could be a directive from the top, with so much discussion about budget deficits and the government trying to keep to their promises of balancing the books by certain dates there may be external pressures placed upon their biggest collection agency the ATO. Generally we find that the behaviour of people within businesses and organisations is a direct result of the management above who place directives upon their staff to reach certain targets. The collections and assessment people hired within the ATO are no different then those debt collectors or assessors outside, they are employed for a reason and that reason is to ensure that all Taxes are paid and collected and that involves monitoring closely what individuals claim in their tax returns each year because this has a direct impact on the revenues and the budget. The  ATO simply through being more efficient and diligent can literally save hundreds of  millions , according to ATO sources over 16 Billion dollars of deductions are claimed by taxpayers each year and  if 10% of claims are incorrect…well you get the picture.

With year end approaching we thought it timely that we provide some information on some of the common mistakes made by taxpayers and on what  you can and cant claim and how to ensure that the tax man does not come knocking on your door and if he does how you can survive the Audit. The directive from the ATO is that they are targeting Flight attendants, real estate agents, builders and property investors, among the common errors are failing to keep log books and receipts and wrongly claiming mobile phone use and generally tardy record keeping and misunderstandings on what you can and cannot claim.

Firstly if you work as an employee you must ensure that whatever you claim has a direct nexus (connection) to your job or industry. Always keep documentation so that at the very least you can back up your claim. You must always ask yourself this question, does this expense that I have incurred have a direct relationship with me being able to earn my income. For example if you work in the building industry on site you would be entitled to claim things such as specific protective clothing with corporate logos and protective footwear and eyewear that is necessary in carrying out your daily functions, also the washing and laundering of this specific protective clothing is deductible. If you are required to purchase tools of trade such as Drills or hammers which enable you to function and carry out your tasks these are deductible. Anyone in the hospitality industry who wears a uniform with corporate logos is also entitled to claim the purchase and ongoing maintenance, in fact anyone who is required to wear a uniform with corporate logos from people working in banking industry to retail to accounting are entitled to claim the purchase and ongoing maintenance of their uniforms.

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Claiming travel and Motor vehicle expenses is always a contentious area and one that always draws the attention of the ATO, firstly the general rule is that as an employee Travel to and from work is not deductible, however travel between two jobs once you have arrived at the principle destination of work is deductible. This is common practice in the building industry where employees are asked to travel in a given day from site to site in their own vehicle. Also the whole trip may be deductible if the vehicle is required to fulfil the duties for example a carpenter is required to carry heavy generators and tools( in excess of 20 kilograms) in his utility each day then the whole trip becomes deductible.

When claiming motor vehicle expenses to be 100% safe and secure  we always recommend the use of a Log book to record the usage of the car or a the very least a travel diary to record Kilometres if claiming on a per kilometre basis.

You must also be very careful in claiming the use of phones and associated costs, if the phone is being used for work and you are not being reimbursed by your employee you are entitled to claim these call costs as long as you have a log of the calls you have made, the actual cost of the phone itself or the monthly plan fee can be claimed but apportioned based on the % of private to work related use …which must be evidenced. We recommend that if you are using your phone or Motor Vehicle for work that you ask your employer to put something in writing stating the reasons why this is the case and keep good records.

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Another area that is often overlooked or claimed incorrectly is Life , sickness and accident and income protection insurances, Life cover is not deductible (unless paid via superannuation fund) however the others mentioned are fully tax deductible to the individual.

One last thing is that we recommend that you get your work to your accountant on time to avoid the standard rush periods which helps avoid late lodgement penalties. Also note that the ATO standard work related deduction amount of $500.00 does not apply till the 2012 year this standard deduction would be available regardless of whether relevant expenditure was actually incurred. For example, a person who completes their own tax return would be able to claim a deduction for their own efforts.  The standard deduction will translate into a $157.50 saving for a person on a 30% marginal tax rate in the first year of the measure; it remains at $300.00 for 2011.

Above all else if in doubt we recommend you seek professional advice when lodging your tax returns, the tax deductible fee paid to the accountant may be a lot cheaper exercise than getting it wrong and triggering an ATO audit.


Important notice and general advice warning:

This information is of a general nature only and is not intended to represent investment or professional advice. This information does not take into account your individual objectives, financial situation and needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A Product Disclosure Statement (PDS) for the products mentioned in this communication should also be obtained and you should consider the PDS in deciding whether to acquire, or to continue to hold, any investment.

The information contained in this document is given in good faith and is believed to be correct at the time of publication, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omission (including responsibility to any person by reason of negligence) is accepted by Chan & Naylor Pty Ltd, its officers, employees, directors and agents.

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