The taxman cometh

With the end of the financial year right around the corner, the time is nigh to turn your attention to your taxes. For answers on how to make tax season less of a hassle, Luke Cornish went straight to the horse's mouth

Tax time can present even the most enthusiastic of number crunchers with a pounding headache but, with the right attitude and the right preparation, the ordeal can be made manageable.

The key to making tax time hassle free as possible is to let someone else do it. If you outsource your bookkeeping, accounting andtax filing, you can probably stop reading right now as you have all your bases covered. However, for those who take a more hands on approach to dealing with the taxman, keeping a few key points in mind can save you an enormous amount of time and money.

Preparation

Famed inventor, philosopher and businessman Benjamin Franklin, once said: "For every minute spent in organising, an hour is earned." This maxim is as true today as it was 200 years ago when it was first uttered and preparation is the key to keeping your blood pressure down as you work on your tax return.

Before you get to work on filing your taxes make sure you have all the relevant receipts, invoices and records so you can finish in one go and can avoid getting up every five minutes to find another piece of paper.

"If you've been doing your bookwork as you go along from a business perspective then come the 30th of June their shouldn't be a huge amount of work to do," says Award Bookkeeping CFO David Patterson.

"You need to keep copies of all your invoices to prove deductions. You will then need to keep them for five years once the return is lodged...before you can destroy them."

The types of records you need can be broken down into two categories - income and deductions. The particular types of records will differ depending on whether you are an employee or whether you are a business owner.

Income

The Australian Tax Office (ATO) is interested in finding out exactly how much money you brought in during the 12 months ending 30 June 2008. For employees, that generally is covered by the payment summary that is issued by their employer. That can be issued either electronically or by paper and is generally delivered by mid-July.

However, taxable income also includes dividends from stock, rental income and money coming from overseas investments and it is important to make sure that all income is accounted for to avoid problems down the road.

"For business people, we sometimes find that if they've got income coming in from foreign sources or trusts or investments that they're sometimes left out," says ATO assistant commissioner Megan Yong.

"If we do a review and find out that they've left out some income or over-claimed deductions then we will go through a process of discussion and investigation with the tax payer and we'll give them an opportunity to explain the situation and we'll issue an amended assessment if that's necessary."

Yong says that taxpayers can be audited any time in the next five years and that, if an investigation finds that the taxpayer has not been paying their fair share, they can be penalised.

"They will probably have to pay some interest on the tax that they should have paid in the first place and they may or may not have to pay a penalty depending on the situation that we find," she says. "If they should have known better there's a general rule that they will be given a penalty."

Patterson says that by keeping good records throughout the year, you can make sure that your tax files are accurate and complete and avoid the risk of heavy penalties later.

"Probably the biggest thing is not having your bookwork up to date," he says. "Leaving it until the last minute and not having things filed properly, it makes it really difficult."

Outsourcing your bookkeeping can provide several benefits, Patterson says.

"A person goes into business because they're good at what they do," he says. "Getting a bookkeeper largely frees up your time as a businessman to do what's going to generate income."

This is probably unsurprising advice from a man who heads up a franchise bookkeeping company but if you have a small operation there really are benefits to having someone else crunch numbers for you - besides...it's tax deductible.

Deductions

Knowing what expenses you can deduct from your tax liability is vital to getting the biggest refund or keeping your tax bill to a minimum. Generally any money paid out to further your business interests can be deducted from your tax liability.

Patterson says mortgage brokers should keep a logbook of their car use to determine what portion is used for business and what portion is used for personal business. This will determine what percentage of your motor vehicle costs you can claim as a tax deduction.

"It can be anything from 100% down," he says. "Ideally when you first purchase a car you will keep a logbook for 12 weeks and whatever the business portion of travel is in that time, you can claim all their costs for the year based on that logbook."

Patterson says the logbook can be used to determine business usage for five years. Other deductible expenses include mobile and landline telephones, internet, computer costs, electricity, wages, superannuation and work cover.

Rental payments for an office are tax deductible and that even applies if you work from home.

"Generally if people are running a business from home there are some rules about having to apportion either their mortgage interest or their rent depending on how much floor space they are using for the business," Yong says. "They can generally also claim a portion of their heating and other utility bills depending on their circumstances."

If you attended the recent Australian Brokers Forum in the Gold Coast, you are able to deduct the cost of the event as well as air fares, accommodation and some meals from your tax liability. The same is true of any business seminars or training events that you go to.

"All forms of advertising - when it's advertising the business -is tax deductible so yellow pages, white pages, magazines, even sponsoring local footy clubs or cricket clubs can be treated as tax deductible advertising," Patterson says.

Depreciating assets

Depreciating assets are any assets that are used for business purposes that you are unable to claim a deduction for. These include motor vehicles, computers and other office equipment such as a photocopier.

"[Before filling out your taxes], you will need records of depreciating assets," Yong says. "This includes computers, recording equipment, cars, pretty much anything that you can't claim a direct deduction for - if it has a life of more than one year then you have to depreciate it for tax purposes."

The ATO will release a booklet on 1 July called "Guide to Depreciating Assets". It will be available via the office's website at www.ato.gov.au. The website is also where you find the most efficient way of filing your taxes.

e-tax

The ATO is encouraging people to move away from the old paper tax returns and start completing all their returns online with a program called e-tax. This service has a number of benefits including having some of the information filled out for you from information the tax office has already.

"If people lodge their tax return online using a facility called e-tax they can get their payment summary downloaded directly into their e-tax return provided their employer has provided it electronically to the tax office," Yong says.

"Tax returns that are lodged online are generally processed within 14 days and often much faster so if people are due a refund there is an incentive to use our online facility."

Getting it right

Yong says that when returns are submitted they are generally processed straight away without being checked at that stage. Then, after the rush, the ATO will target high risk cases for review.

These can be returns that have a high level of claims or just people who are considered to be very wealthy. Any inaccuracies can be very harshly punished but Yong says the majority of mistakes on tax returns are simple mistakes.

"People forget to sign their paper tax return," she says. "If they lodge by paper they need to sign it and if they don't we send it back."

"They will sometimes leave out details from particular items or labels on the return and our systems might throw that out and send it back saying you really need to fill in this or we can't process it properly."

Having your entire paperwork ready and knowing what you are deducting will save you a great deal of time, money and hassle. If you are lodging your taxes yourself you have until 31 October to submit them to the ATO but if you are going through an agent you may have even longer.

Still, it is best to have your return finished off and submitted as soon as possible so the only thing you have to worry about when summer rolls around is working on your tan... and your loan book.

Find out more: www.ato.gov.au
For individual returns call ATO at: 13 28 61
For business returns call ATO at: 13 28 66.