Preparing your tax return can be a tedious job. Being organised will make the task easier, and the new year is a good time to start afresh.
Having a simple filing system for important receipts and documents can save you time. It may help you claim extra deductions, too.
To find out how to get on top of record keeping for tax time, we spoke to the ATO and a tax expert from Chartered Accountants ANZ.
First, remember the three 'golden rules'
When it comes to claiming work-related deductions on your tax return, the ATO's three "golden rules" must apply:
- You must have spent the money yourself and not been reimbursed;
- The expense must directly relate to earning your income; it can't be private in nature;
- You must have records to prove it. Receipts are best.
"For most expenses you must have a receipt or similar document that includes information such as the date of purchase, purchase price, what was purchased, and the seller's details," an ATO spokesperson told ABC Everyday.
"A bank or credit card statement that doesn't include all this information isn't an acceptable record on its own."
Why it's time to stop keeping receipts in a shoebox
Whether you're doing your tax yourself or using a tax agent, a digital filing system will help you avoid having to sift through piles of receipts.
"Your Chartered Accountant and the ATO really encourage digital record keeping tools rather than sorting through a shoe box of receipts," says Susan Franks, senior tax advocate at Chartered Accountants ANZ.
"Digital record keeping also helps avoid the problems where receipts are lost or destroyed, and replacement copies need to be obtained."
The myDeductions tool in the ATO app can help you keep track of many work-related expenses — and it's free.
You can upload any expenses and deductions you've recorded to help pre-fill your tax return. Alternatively, you can use the app to email all your expenses and records to your tax agent.
"Some taxpayers often only think about finding deduction records at tax return time," Ms Franks says.
"But the key to maximising your claim is to obtain and keep records throughout the year and remembering to keep them handy just in case the ATO asks to see them."
The records you need to keep for tax time
The ATO says it's important to keep records for:
- Payments or amounts you receive;
- Deductible expenses (such as work-related expenses); and
- Investments and assets.
"You can keep your records in paper or electronic format, including photos of your written evidence," an ATO spokesperson says.
"If you make paper or electronic copies of your records, they must be a true and clear copy of the original record."
Set up a system if you're claiming deductions for car trips
One common claim is work-related car expenses.
A tradesperson driving from one work site to another would usually be entitled to a deduction for travel expenses incurred. However, most people can't claim costs incurred for travel between work and home.
There are a number of ways to claim travel expenses with different record-keeping requirements.
One simple solution is to use myDeductions to work out the distance travelled or to track trips via GPS.
If you work from home, you should be tracking your hours
Many people claim tax deductions for working from home either part time or full time.
The simplest way to claim a deduction is to use the ATO's "fixed rate method" to claim 67 cents for each hour you work from home.
To make a claim, you must keep records of "the number of actual hours you work from home during the entire income year".
That means keeping a spreadsheet, roster, diary or similar document. You could also use the Fair Work Ombudsman's Record My Hours app to track your hours on your smartphone.
How long do you need to keep tax documents and records?
"The general rule is you must keep your written evidence for five years from the date you lodge your tax return," Ms Franks says.
"In limited circumstances, there are different time periods for keeping records or record-keeping exceptions."
It's a good idea to think about keeping a backup of your important tax documents. If you use the myDeductions tool, there's an option to back up your information online.
By keeping good records, you can avoid problems arising in future, Ms Franks says.
"You can be penalised for not keeping records that support the deductions you've claimed."
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