Tax...

[the_scotsman]

Hey...just a quick question for anyone who knows about this stuff! :|

I usually do my tax myself online as I don't have a lot to claim for...and have never had any dramas doing it myself before.

I have always claimed my work travel expenses that I have NOT been reimbursed for, ie travelling from one place of work to the other and back.

This year I entered the amount of kms I am claiming (using the cents per km method). (section D2)

The strange thing is that the value that the program worked out I am claiming for travel, was taken off my taxable income. I am sure that in previous years, it has added to the amount of tax return I am entitled to? So at the end of the calculations, the program REDUCED the amount of money I am entitled to receive as a tax return....!??

Can someone please help me clarify what shoud be happening here?

Thanks!

[tbearz]

Um, well that sounds wrong!! You would think that when you "Claim something" you recieve it back i.e. it adds to the amount you get in your Tax Refund...... Maybe we cant trust the computers after all!!

[the_scotsman]

lol...thats what I thought...that is what has happened last few years Ive done it. I claimed "x" amount of kms and my tax return has been increased accordingly.
This year its taking my "claim amount" from my total taxable income?!?

Its got me stumped...

[Abacus]

Here's how it works:

You pay tax on your "taxable income". The smaller your taxable income, the less tax you pay.

If the tax payable on your taxable income is less than the tax taken out of your pay during the year by your employer, you get a refund of the difference.

Your taxable income is your "assessable income" minus your "allowable deductions".

Your wages are "assessable income".

Your travel expenses are "allowable deductions".

So the program has correctly deducted the car expenses from your wages to arrive at a smaller taxable income. This means your income tax liability is smaller, and the refund of tax paid by your employer on your behalf will be bigger.

[the_scotsman]

Thanks for your help/explanation...

I sort of understand...but...as far as I can see...I will be better off by not claiming ANY travel expenses...?

Thats how it works out when I try it both ways...?

[Abacus]

No, let's try an example.

Say:

Gross Wages = $800 per week = $41,600 for the whole year.

Tax taken out by your employer = $180 per week = $9,360 for the whole year.

Net wages = $620 per week = $32,240 for the year.

Actual tax on $41,600 = $9,276.

So, if you had no other income or deductions, your taxable income would be $41,600, your actual tax liability would be $9,276, and you would get a refund of of $84, being $9,360 - $9,276.

Now, let's assume you had unreimbursed travel of 1,000km, and you drove a Falcon. The allowable rate per km for a Falcon is 67c/km, so you would claim an allowable deduction of $670. Your taxable income would then be $40,930 ($41,600 - $670)

The actual tax payable on $40,930 is $9,064.95. So you would get a tax refund of $295.05 ($9,360 - 9,064.95).

[Smoke Pursuit]

Abacus is correct.

Seems like theres something wrong with the system...

Basically what its doing is reducing your Taxable income, as he says. Therefore it should give you some form of tax relief, unless its a very unsubstantial number, or unless theres some other issue.

How much are you trying to claim if you dont mind me asking>

[S3SR]

just visit a tax specialist for around $66 well thats what it cost me last year.... they saved me around $900 and got me an extra $76.50 so they paid themselves

[the_scotsman]

WOOPS!

you guys have helped me clear it up...didn't seem right after it was explained...Im going blind...What I was seeing before claiming travel was money I was OWE THEM!!!

After claiming travel, it goes into the +, and I then get a "estimated refund due" !

My bad! Sorry guys...was up all night last night watching the GP...

But now Im confused, why would I start off owing them $500 odd dollars??? Does that mean they havent been taking enough tax off me each month?

[MightyXR6Turbo]

The way the Tax system works, is when you get paid, the tax that comes out is a variety of average rate assuming that you are gonna keep earning the same amount for the whole financial year.

So when your pay fluctuates up and down, the amount of tax that comes out is not the same. So because of this fluctuation, you end up in a scenario where you can possibly owe the ATO tax.

Under the same theory, this is how most people end up with refunds, because of the fluctuations in tax from one pay to the next if your income moves.


As for deductions, most people don't understand how it works, and think that a deduction = cash in hand. That is obviously wrong, all a tax deduction does is reduces your taxable income by the same amount.

The aim of deductions (for Work Related stuff for instance) is to make it so that you don't pay tax on things that you needed to purchase as a result of earning your assessable income.

Hope that helps.

What proof do you need to submit to the tax office for this claim??

[the_scotsman]

up to 5000kms...nothing...they *may* ask you to show *how* you calculated it, but no log books/records are required...

Thanks Mighty, that helps make it clear...looks like I wont be getting as miuch back this year...bugger...

[MightyXR6Turbo]

For the cents per kilometre method you do not need to have written substanciation, but if asked, you need to be able to show how you arrived at that figure. Keep in mind that the ATO keeps an eye on these things.

For instance, if you are a Shop assistant, and you claim a crap load of deduction under that method, the liklihood of audits are higher...

Better to not lie to the ATO with these things, as if it is found that you cannot substanciate your claims, the penalties are a killer

[Abacus]

Originally Posted by the_scotsman

WOOPS!


But now Im confused, why would I start off owing them $500 odd dollars??? Does that mean they havent been taking enough tax off me each month?

A few common reasons, that may or may not be relevant to you.

- Probably the most common, you earned more than $50,000 and didn't have private health insurance. If this is the case, the Medicare rate goes from 1.5% to 2.5% of your entire taxable income, which means an immediate tax jump of $500.00 over and above what your employers would have provided for. If you had private health insurance for the whole year, make sure you complete the medicare section and confirm you were covered for 365 days.

- Your employer might not have taken enough tax out of your pay. This is most likely to happen if you had a pay rise during the year, which pushed you into a higher tax bracket.

- You had two jobs at the same time, and both employers treated you as if you were only working for only one of them. When this happens they both base their tax calculations on the lower tax brackets, but when you lodge your tax return and the incomes are added together, you are actually in a higher tax bracket.

- You had money from other sources, such as interest or dividends, which gets added to your wages when calculating taxable income.

Other things can affect it, but the above issues are the most common.

[the_scotsman]

Yea, the first one does apply to me (only just) so thats what it is...bugger...thanks again for the help!

[XRchic]

Tradies and mechanics watch out this year and make sure that if you are making unusually large deductions for costs incurred as employees in this field, that you have your substantiation in the form of receipts etc... apparently the ATO are after tradies such as mechanics, electricians and other workers such as factory workers.

Its only a problem if you plan on making an unusual deduction, where it may stand out to an auditor doing checks on those particular employees. If you can back it up, then no probs.

As Chris said, the penalties are pretty severe if you get caught claiming deductions for things that are a little fabricated.

[bjr22n_]

i am working in the tax game (i am currently training to become a certified tax agent) that is the clearest anyone has explained how the process works.

well done Abacus.

Originally Posted by MightyXR6Turbo

For the cents per kilometre method you do not need to have written substanciation, but if asked, you need to be able to show how you arrived at that figure. Keep in mind that the ATO keeps an eye on these things.

For instance, if you are a Shop assistant, and you claim a crap load of deduction under that method, the liklihood of audits are higher...

Better to not lie to the ATO with these things, as if it is found that you cannot substanciate your claims, the penalties are a killer

Thanks for that;
Scenario:
The office I work in is at North Sydney but often travel out to the local office in Bankstown. What would I be able to claim as a business kms, if I were to drive to Bankstown directly from home, then continue onto North Sydney, then drive home from there.

[MikGan]

Yeah my mum made an honest to god addition error about 10 years ago and not only did they cancel her refund, she was fined 800% of what she would otherwise would have recieved. Was aired on 60 mintues and everything.

Since then I dont bother trying to scam an extra $70 bucks or whatever the going rate is for travel etc. I'd rather just have it out of the way.

[MYVYSS]

Anyone not claiming the 5000 km/s a year is a fool....it never gets checked, and as long as you just dont throw it in but build it up for a few years, you possibly will never get caught, I always say I do like 7000 but claim the 5000 maximum....

[Sourbastard]

OK, Marge, if anyone asks, you require twenty four hour nursing care, Lisa's a clergyman, Maggie is seven people, and Bart was wounded in Vietnam!

[Dazza XLT]

I have been claiming the 5000 since I started driving. Why not!
Certainly earned it this year, driving from Katherine to Winton, and Winton to Bowen.
Have well and truely done 5000klm easy!

[Abacus]

Originally Posted by BlackLS

Thanks for that;
Scenario:
The office I work in is at North Sydney but often travel out to the local office in Bankstown. What would I be able to claim as a business kms, if I were to drive to Bankstown directly from home, then continue onto North Sydney, then drive home from there.

Generally, the cost of travelling to and from work is not deductible.

Broadly, you get a deduction for expenses necessarily incurred in gaining or producing your income, except to the extent that those expenses are of a capital, private, or domestic nature. Whilst it is obvious that it is necessary to travel to and from your place of work to earn your income, the courts have held that this kind of expenditure is of a private or domestic nature. So, no deduction.

However, the cost of travelling between two places of work, whether they are for the same employer, different employers, two places of business, or a place of employment and a place of business is deductible.

In your case, the deduction rules will work as follows:

- Travel from your home to Bankstown – not deductible

- Travel from Bankstown to North Sydney – deductible

- Travel from North Sydney to home, not deductible.

Here’s a link:

http://www.ato.gov.au/individuals/co...tent/46856.htm

If possible, it may be an idea to find a work-related reason to stop by the office closest to your home at the beginning of the day, and at the end of the day. This way all the travel between the two workplaces will be deductible, and you will only lose out on the shorter distance to and from your home and the closest office.

Incidentally, if you are a mechanic, and your employer cannot provide a secure place for the storage of your tools, it may be possible to mount a case for claiming a deduction for driving to and from work with your tools in the boot of the car. There is nothing in the Income Tax Act that specifically allows this, but it is a concession generally allowed by the Taxation Office where it appears reasonable.

The argument is that the travel by motor vehicle has more to do with the security and protection of your tools of trade than the private or domestic nature of the travel. The Taxation Office may ask questions along the line of whether you would normally drive to work anyway, as opposed to catching public transport. If you would normally drive anyway, you will be less likely to persuade them to give you a deduction for your car expenses, as you have not incurred any additional expenditure to protect you tools of trade.

If you think you have an arguable case, I would recommend that you seek a private ruling from the Taxation Office first. This will involve writing to them setting out all the relevant circumstances, and waiting for a reply.

Other similar claims may be mounted by employees who need to carry substantial materials to and from work (by substantial, I mean something considerably bigger than a laptop computer). But like I said, get a private ruling first.

Thanks very much for that, will certainly follow that up.

Looks like I can deduct a lot more than I thought, carrying tools around and the like.