You’ve made it. You’re halfway through the working year. Your Summer holidays may seem a distant memory in the winter chill, but with Spring around the corner, it’s all downhill from here. Right? Not quite. You still have to tackle your taxes.
With a new financial year already two weeks in, it’s time to dig up those receipts, chase up that group certificate, and leaf through (or click through) that headache of a housekeeping task — your Tax Return. Tax returns can be time-consuming, tricky business, especially for those with a small business or multiple income streams, but if you take the time to understand it, you can avoid penalties, maximise your return, and plan for the year ahead.
Why tax returns are important
If you’re an Australian resident with a taxable income — that is, personal yearly earnings above the 2011-2012 minimum tax threshold of $6,000, business income or capital gains — your tax goes into a pool that makes up 66 per cent of the federal government’s total revenue.
For most company employees, tax is automatically deducted from your salary or wages based on four tax brackets. Superannuation and university loan repayments are also taken out. Some companies that provide employee benefits such as cars, mobile phones and laptops, particularly in the non-profit sector, offer salary packaging. This allows employees to reduce workers’ taxable income by deducting expenses from pre-tax income.
As each working situation and industry is different, people on the same salary are eligible for different tax deductions. Your personal income tax is adjusted at the end of the financial year to reflect your individual earnings and claims, or “taxable income”. The information on your tax return helps the Australian Tax Office monitor and adjust Australian taxation law.
So, whether you’re working for yourself, or a small or major company, on 40K or 140k, your tax return matters and the deadline to submit is October 31. Who knows, you could be in for a juicy mid-year bank deposit from Mr Tax Man (or the ATO).
Before you call a tax agent, pick up the phone to the tax office or settle in at your laptop, the first thing you need is your group certificate — a summary of your total earnings and tax paid. If you plan on claiming back any work-related expenses beyond the minimum automatically eligible amount of $300, you will need receipts and in some cases a diary of your work patterns — petrol used on work trips for example. The average total of work-related tax deductions claimed in 2008-2009 was $2,039, so don’t be shy and underestimate how much you are eligible for. Take the time to read the deductions section of the ATO website to see what you don’t have to pay for out of your own pocket.
If you earn income from a trust fund or investments, you will need to declare those earnings and provide all documentation. This includes payments in the form of goods and services. If you sold property this year and gained income from that, you need to pay capital gains tax. If you or your dependents are eligible for the Education Tax Refund, you will need to provide enrolment documentation.
Lastly, you will need to check that all names, addresses and all other details are correct. You don’t want to make a seemingly minor mistake and have to re-submit your tax return.
Deciding when to ask for help
For people in a complex financial situation, or demanding job, it is tempting to put tax matters in the hands of a registered accountant. This can save time, increase tax benefits, and avoid penalties by ensuring you don’t make any mistakes. Make sure you have prepared all the correct documentation for that first appointment to reduce the number of meetings and fees.
Private, online accounting companies can also help with tax calculations, and they are generally cheaper than face-to-face meetings.
Meanwhile, the number of people submitting their tax returns online is increasing, with more than 20 per cent of Australians expected to opt for DIY e-tax this year. The Australian Tax Office website provides a streamlined submission process, with the option to save and come back to the task, so you can take a breather.
Either way, it will pay off to get your head around your tax so you can be more organised with your financial housekeeping this year.
Tax returns submitted online can be issued within 12 days.
Dealing with mistakes
If you make an honest mistake, and it is clear that you or your tax agent has tried to provide all the accurate information, you will not receive a penalty. However you may have to pay extra tax if the total taxable income has been understated.
But if you follow instructions carefully and take your time, your tax return will be done and dusted before you know it — next job, planning Spring or Summer break!