Date issued: 10 October 2007

Taxpayers who choose to prepare their own income tax returns for 2006-07 may face penalties for failing to lodge their returns by 31 October 2007.

CPA Australia's Senior Tax Counsel, Mark Morris, said 'If you want to prepare your own return, using either e-tax or taxpack, you may face late lodgment penalties if you miss the 31 October deadline by even one day.

If you owe tax, you may have to pay interest on your unpaid tax for the period from the deadline to your late lodgment date.'

He said that approximately one in four individual taxpayers prepare their own tax returns. The others engage a tax agent to prepare their returns, which could be to their advantage.

He explained 'If you engage a registered tax agent by October 31 to lodge your return as part of their annual lodgment program, you can save yourself considerable cost and hassle.

The agent can cut through the maze of complicated tax rules to make sure you claim the deductions and tax offsets to which you are entitled. You can claim the agent's fee as a tax deduction in the following year's return. You can also avoid the last-minute do-it-yourself rush to avoid penalties.'

For those who wish to prepare their own tax return, Mark has the following tips.

Work-related expenses

Workers can claim up to $300 without receipts. However, the claims must be for items necessary for your work, for example, work travel, uniforms, subscriptions, union fees and self-education expenses.

The ATO carefully scrutinises such claims and in 2007-08 is expected to focus on employees in various occupations including, tourism workers, travel consultants, fitness and sporting industry employees, construction workers, security guards and mining site employees.

Self-education expenses

You can claim for self education expenses if you are undertaking study directly related to your current work; but not if the study is to help you obtain new qualifications in a different field. There are special rules regarding the first $250 of self-funded education expenses, so check with your CPA or the Tax Office.

Higher Education Contributions (HECS) cannot be claimed.

Car expenses for work-related travel

Claims under the log book method can be based on a reasonable estimate of business kilometres travelled. Alternatively, the cents per kilometre method can be used, but claims will be limited to 5000 km of travel.

Where business travel exceeds 5000 km, it may be possible to claim one-third of actual car expenses, or 12 per cent of the original value of the vehicle. Further details can be obtained from your CPA or the ATO.

Depreciation claims

Some depreciable items such as tools, computer equipment, technical books, which are worth less than $300, or will last for less than three years, can be claimed in full, but only if they are used in gaining assessable income other than business income.

Larger items such as personal computers may have to be written off over several years and you should consult the ATO or a CPA Australia member about the relevant rates.

Investment income

Dividends and interest: Make sure all interest and dividends are included as the ATO matches tax returns with information it obtains from financial and investment institutions. Last year, the ATO identified 257,200 discrepancies worth $144 million in revenue adjustments after comparing third party information against returns.

This year, the ATO expects to match over 220 million records across a wide range of areas.

Capital gains: Sales of assets may give rise to a capital gain. If the asset was acquired after 21 September 1999 and held for at least 12 months, a 50 per cent discount on the net capital gain may apply. For assets acquired before that date, either the discount rule or frozen (as at 30 September 1999) indexation may be used.

Financing for such investments like bank charges and any interest payments, are typically deductible in the year in which they are paid. The ATO will continue to closely monitor capital gains arising from the sale of real property and shares, and distributions by managed funds.

Rental property and income deductions: In the 2005-06 year approximately 1.5 million individuals declared rental income of $18 billion and claimed rental deductions of $22 billion. While rental income was up by about 9 per cent on the previous year, rental deductions increased by approximately 15 per cent.

The ATO sent correspondence to 65,000 individuals asking them to review their rental property claims, which resulted in $1.4 million more tax collected , and a further $7 million was raised following 6,700 audits or reviews.

Superannuation 

Self employed: If you are substantially self-employed, you can claim a deduction on any superannuation contributions you've made on your own behalf with a full deduction up to $5000 and a deduction for 75 per cent of the amount above this. The maximum deduction available is equal to your age-based limit.

Spouse low income rebate: A spouse rebate of up to $540 applies where a taxpayer contributes to a superannuation fund on behalf of a low income/non-working spouse. The spouse must be earning less than $10,800 to receive the full rebate and it cuts out when the spouse earns more than $13,800.

Medical expenses

You can claim a rebate of 20 per cent of allowable medical expenses over $1,500. This is net of refunds from Medicare and health funds. Not all medical expenses are eligible (e.g. chiropractors or psychologists, unless you can show that you were getting therapeutic treatment). Dental expenses are included, so keep your receipts.

Private health insurance

A 30 per cent tax rebate can be claimed on the cost of health insurance premiums paid by individual taxpayers. However, the rebate is not available where the benefit is taken in the form of a direct payment or reduced premiums. Higher income earners without adequate health cover are liable for an additional one per cent Medicare levy surcharge.

Child care

Child-care costs are not an allowable deduction, but a rebate of 30 per cent is available for out-of-pocket child-care costs.

The rebate claimable in your 2007 tax return is based on net child-care costs incurred for the year ended 30 June 2006, and you are allowed a 30 per cent rebate of up to $4,000 for each child. Any rebate with relates to the year ended 30 June 2007 or subsequent tax years will be paid directly to parents by the Family Assistance Office.

Taxpayers who require further time to lodge or professional assistance to guide them though the maze of tax rules must see a registered tax agent by 31 October 2007.   

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