Doing your own tax return? Watch out for these common mistakes

More Australians are choosing to file their own tax returns, a trend that has grown steadily since the launch of the MyTax system in 2014. While this self-filing option offers convenience, it also presents challenges due to the increasing complexity of modern life. According to Natalie Peng, a lecturer in accounting at the University of Queensland’s School of Business, individuals are encountering difficulties in accurately reporting their earnings and deductions. This complexity arises from factors such as side hustles, remote work arrangements, cryptocurrency investments, and income generated through digital platforms.

Lisa Greig, a registered tax practitioner and lecturer in taxation law at the University of Melbourne, highlights that many taxpayers are filing their returns prematurely, leading to potential corrections and additional costs. She notes that rushing the process could necessitate amending the return later, resulting in interest charges and administrative fees. The Australian Taxation Office (ATO) is particularly focused on areas where errors frequently occur, such as work-related deductions, claims for working from home, unreported income, rental properties, and capital gains.

This year, the ATO is scrutinizing non-traditional forms of income, including earnings from side gigs, gig economy roles, cash-based jobs, and profits from selling assets like stocks or cryptocurrencies. Dr. Peng emphasizes that while the ATO has access to extensive data from various sources—such as employers, banks, share registries, and crypto exchanges—it remains the taxpayer's responsibility to ensure accuracy in their return. The ATO increasingly cross-checks submitted information against its existing records to detect inconsistencies.

Recent discussions about a proposed $1,000 instant tax deduction have sparked confusion among taxpayers. However, Lisa Greig clarifies that this measure, if enacted, will not come into force until the 2026–27 financial year. In the current fiscal period, the ATO has addressed over 140,000 individual tax returns with discrepancies related to employment income, interest, dividends, welfare payments, Medicare levy exemptions, and private health insurance.

Timing plays a crucial role in the tax filing process. The ATO utilizes data from third-party entities to assist in completing returns, but this information may not be fully available until the end of July. Filing too early, such as on July 1, could lead to the necessity of submitting an amended return later. Dr. Peng suggests preparing for the tax season well in advance, ensuring all necessary documents are organized, including verifying myGov access, updating banking details, collecting receipts, and reviewing income statements and bank transactions.

For those anticipating a tax refund, Lisa Greig recommends waiting until late July to submit their return. Conversely, if a taxpayer expects to owe money, it might be prudent to wait until October 31 to file. Those who engage the services of a tax agent have the flexibility to delay filing until May 15 of the subsequent year, provided they remain registered with the agent by October 31.

When claiming work-related deductions, three fundamental principles should be followed. First, the expense must be personally incurred without reimbursement from the employer. Second, the expenditure must be directly tied to generating income. Lastly, proper documentation, such as receipts, is essential. Common pitfalls include attempting to claim non-deductible items and misclassifying expenses, especially concerning work-from-home setups.

Rental property owners face unique challenges, such as incorrectly claiming full interest on loans partially used for private purposes, categorizing renovation costs as repairs, or failing to adjust deductions when a second home is used for personal reasons. Investors must also remember that disposing of assets like shares or cryptocurrencies can trigger taxable events, regardless of whether the proceeds have been received yet.

The use of artificial intelligence in tax preparation raises concerns. While AI can aid in organizing information, it poses risks when providing guidance, given the specificity and constant evolution of tax laws. Dr. Peng cautions against relying solely on AI for decisions regarding claimable expenses, noting that it may reference outdated or irrelevant information. Privacy issues also arise when sensitive data, such as pay slips or bank statements, is inputted into AI systems.

For uncertain matters, Elizabeth Morton, a senior lecturer at Curtin University’s law school, advises consulting the ATO or a certified tax agent. She underscores the importance of verifying the credentials of any professional offering tax advice, ensuring they are listed on the Tax Practitioners Board Register. Additionally, caution is warranted when seeking guidance from social media influencers, as their qualifications as registered tax agents are often unclear.