Sydney 17 July 2014. Australian taxpayers take great pride in being creative in claiming tax deductions, to beat the taxman, but under the Self-Assessment Tax System it is the taxpayer who will be penalised when claiming incorrect tax deductions.

H&R Block’s Regional Director, Mr. Frank Brass said “This means, in effect, taxpayers can claim ‘anything within reason’ in their tax return and the refund will be issued, but if the claims are found to be incorrect, the taxpayer will be required to repay the tax avoided, plus pay interest on incorrect claims of up to 12% per annum. If the tax office believes that the taxpayer has acted carelessly, a penalty between 25% and 100% of the tax avoided may also be charged”.

H&R Block are issuing this list of common misconceptions to help taxpayers only claim what they are entitled to, and get their tax returns correct, before they lodge them.

Below is a list of common mistakes and misunderstandings:

Not Declaring All Your Income

The Tax Office now receive your income information electronically from most institutions that pay interest and dividends, foreign income from overseas tax offices, Payment Summaries (Group Certificates) and pension payments.

This information is used to match income declared in tax returns. If the income declared is not the same as the income matched, the Tax Office issue an income discrepancy notice.

If it is found that you have under declared your income, the tax office will issue an amended assessment and general interest charge of about 11% will apply and a 25% culpability penalty. Do it again the penalty can add up to 50% of tax avoided.

Personal Services Income

Alienation of Personal Services Income occurs where an individual seeks to reduce or defer their income tax and other liabilities by diverting their personal services income through companies, partnerships or trusts that are not conducting personal services businesses. Only an individual can have Personal Services Income.

Personal Services Income is defined in the act as income mainly as a reward for your personal efforts, skills and exertion.

Not Claiming Excess Imputation Credits

A feature of the New Tax system is that taxpayers who do not use up all their imputation credits, in reducing their tax payable to zero, can claim any excess refunds back as a tax deduction.

Not Claiming Senior Australian Tax Offset (SAPTO)

This rebate has increased in the past few years and means many taxpayers, who are self-funded retirees, do not have to pay tax until their income gets to the same taxable levels as pensioners.

Self-Education

You need to be sure that the education undertaken has the necessary nexus to the income you are currently earning, otherwise the deduction is not allowable

Home Office

You are NOT entitled to claim a percentage of rent or the interest on a mortgage if you are using your home as a home office to do work at home after hours. You are only entitled to a set rate per hour (Currently .39c) to cover the running costs. Heating Electricity furniture carpets etc.

Car Expenses

You need to have the necessary records to substantiate your claim

• Log Book if you are using this method

• Actual record of kilometres travelled (Diary or similar records) if you are claiming the per kilometre method

• The receipts and invoices is you are using the log book or 1/3 actual expense methods.

NOTE: You are not entitled to claim any expenses if the car is provided by your employer.

Claiming tax deductions for items that you use part for work and part personally

You are only entitled to claim that part of the expense that directly relates to your job.

Mobile Phone/Home Phone and Laptop

You will need to keep a log of the calls so you can pick up the costs from your itemised bill

I work in a fashion shop and my employer requires me to buy and wear clothes from the shop whilst working, therefore I can claim these costs.

There is no claim as the clothes are of a conventional nature.

I work as an employee chef and I go to a different restaurant each week to see what our competitors do and therefore I can claim these costs.

This claim is not allowable as the expense is of a private and domestic nature as there is a tenuous relationship between the expense and the current income.

I work in a bottle shop and I purchase products so I can talk to the customers who ask questions on various products.

This claim is not allowable as the expense is of a private and domestic nature as there is a tenuous relationship between the expense and the current income.

I do some work at home in my home office; it is 20% of the area of the house so I can claim 10% of the rent or mortgage.

The rules specifically exclude such a claim, the home office deduction rules limit claims to the outgoings in relation to the home office, heating electricity and depreciable costs of desks, computers, carpets chairs, filing cabinets and bookshelves.

I work for a travel agent, and during my holidays I travel to various tourist sites that I discuss with clients at work.

This claim is not allowable as the expense is of a private and domestic nature as there is a tenuous relationship between the expense and the current income.

Self Education Costs - I work as a retail pharmacy assistant part time, whilst studying fulltime for my Pharmacists degree, therefore I can claim my education costs.

This claim is not allowable as the education is designed to open up a new field of employment and does not relate to the current income earning activities

Pay TV/ Cable TV costs - I work in the advertising industry and as our clients advertise on Pay TV, I can claim my subscription costs in my tax return

This claim is not allowable as the expense is of a private and domestic nature as there is a tenuous relationship between the expense and the earning of your income.

Parking Costs - I live in the country, without public transport, so I can claim the costs of parking my car in a car park near work.

The costs of driving and parking to get to work are a private expense and are not deductible.

Personal Superannuation Contribution - My only income is from salary and wages. I made a personal superannuation contribution to my superfund and I can claim that amount as a deduction on my tax return.

This claim is not allowable as you don’t meet the ATO 10% rule. This means that in order to claim the deduction, your salary and wages income cannot be greater than 10% of your total assessable income.

Expenses related to company car - I was provided a company car. I need to wash the car regularly before going to see the clients. I can claim the car wash expenses on my tax return.

The claim is not allowable as the expenses is of a private and domestic nature.

I am an actor and I can claim the costs of tickets to go to cinema and theatre.

This claim is not allowable as the expense is of a private and domestic nature as there is a tenuous relationship between the expense and the current income.

I bought a $50 raffle ticket and I can claim it as a donation on my tax return.

This claim is not allowable as it is not truly a gift and it can be used to provide a benefit for you. You can only make tax deductible donations to organisations that have the status of deductible gift recipients (DGRs). The receipt (in your name) must also be kept if the donation is more than $2.