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Australian taxpayers are savvy tax strategists
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27 July 2006 
 
A national survey by the Institute of Chartered Accountants, has revealed that a yearlong tax strategy is a priority for more than half of Australia’s working population, with 54 per cent of Australians, working fulltime, able to produce written records for every deduction claimed on their most recent tax returns and a further 35 per cent of the population able to produce written records for some if not most of their deductions claimed.  
 
The survey also found that:  

  • 7 in 10 taxpayers use an accountant to prepare their most recent tax returns
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  • Of those who did not use an accountant to complete their tax return, 57 per cent used the Tax Pack Booklet (including Newsagent/Mail copy - 40 per cent and/or downloaded web copy -25 per cent) and 40 per cent of respondents used e-tax. (It should be noted that some respondents used both options as a source of information)
 
Tax Counsel for the Institute, Ali Noroozi said the results from the survey indicate that Australians are very savvy when it comes to preparing for their tax returns - at least when it comes to keeping back up documentation.  
 
“People seem to be very aware of the deductions they are entitled to claim, but they should still take care not to overstep the mark and become involved in tax avoidance schemes, which have caused many problems for people in the past and which the ATO is attempting to identify early in the piece,” Mr Noroozi said.  
 
The findings are in line with the most recent taxation statistics released by the Australian Taxation Office (ATO), indicating that Australians claimed more than $11.1 billion in work-related deductions.  
 
The survey, conducted in July, also found those that are male, married, have a household income of more than $70,000 and are over 50 years of age are well informed about their entitlements and are in fact the best prepared taxpayers at the end of the financial year.  
 
Enthusiastic tax planners can be found in Western Australia with 78 per cent believing they are well informed about their entitlements and 91 per cent claiming they keep thorough records of their deductions. Queenslanders are also quite savoir-faire with 73 per cent believing they are well informed and 91 per cent keeping meticulous records.  
 
Australians in the 50 plus age category are the best informed about their entitlements (26 per cent), with those in the 25 - 34 age bracket a close second (25 per cent) followed by the 35 - 49 age bracket (22 per cent). The 18 - 24 tax bracket feel they are not as well informed of their entitlements with only 14 percent believing they have a strong understanding.  
 
41 per cent of taxpayers have more complex tax returns or are self-employed with 77 per cent of those have an accountant take care of their end of year tax return  
 
“Meticulous record keeping is essential when planning for year end tax returns and keeping inappropriate or obscure records could leave you exposed when the ATO come knocking on your door,” Mr Noroozi said.  
 
Tax tips for effective record keeping are included below:  
 
TIPS ON EFFECTIVE RECORD KEEPING  
 
I know I have to keep records for my tax return but what does this actually entail?  
 
Taxpayers are generally required to keep records of every act, transaction, event or circumstance that can reasonably be expected to prove an item of expenditure in their tax return. This is needed to prove their deduction claims in case the Tax Office audits them. Broadly, documentary evidence for most types of expenses means a receipt, invoice or similar document obtained from the supplier setting out:  
 
  • The date the expense was incurred;
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  • The name of the supplier;
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  • The amount of the expense;
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  • The nature of the goods or services;
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  • The date of the document.
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    Some record keeping considerations:  
     
    Work-related expenses: Tax deductions for work-related expenses for example cost of business related books, union fees or professional association subscriptions, could be claimed for up to $300 without any receipts. For expenses greater than $300 the taxpayer must have receipts and records to substantiate the amount claimed in their tax return.  
     
    Asset Purchases: Assets such as tools of trade, computer equipment, books, electronic organisers etc. which are $300 or less in value, (or will last for less than three years), can be claimed as a tax deduction in full. Taxpayers need a receipt or other documentary evidence to prove their purchase. If they are greater than $300 then they have to be written off over several years (depreciated). Taxpayers not only need a receipt or other documentary evidence to prove their purchase but they also need to explain the depreciation rate and methodology they have used to calculate the depreciation amount.  
     
    Car Expenses: There are various methods for calculating the amount of the tax deduction for car expense claims. The type of records taxpayers need to keep will depend on their estimated business kilometres travelled and the method they use to claim their deduction. For example if their estimated travel is more than 5,000kms, and they use the cents per kilometre method, then they would need records showing how they calculated the business kilometres travelled and the amount of the claim.  
     
    If however they choose to use the logbook method then they must complete a logbook. The logbook must cover at least 12 continuous weeks and include details such as when the logbook period begins and ends, the car’s odometer readings at the start and end of the logbook period, and the business use percentage for the logbook period.  
     
    Travel Expenses: A taxpayer may need to keep records if they are claiming domestic or overseas travel expenses for accommodation, food, drink or incidentals. For example if a taxpayer does not receive a travel allowance and their travel is for less than six nights in a row, then they are required to have written evidence to support their claim. If however the travel is for more that 6 nights, then they need to keep written evidence and a travel diary.  
     
    The travel diary must not only show details of taxpayer’s activities but also the dates, places, times and duration of their activities and travel.  
     
    Uniform expenses: A taxpayer must have receipts for uniforms, occupation specific and protective clothing. If the amount of the expenses claimed is less then $150 in total then a basis for their claim for laundry costs is required to be documented and explained. If however the total claim is greater than $150 then diary entries or receipts for the claim will be required. For example receipts for dry cleaning costs.  
     
    Minor expenses: An entry made in a diary may be treated as documentary evidence and satisfy the record keeping requirements of a particular expense where either the expense does not exceed $10 and the total of small expenses claimed for the year does not exceed $200. Each diary entry must be made as soon as practicable after the expense was incurred and set out all of the details which are required to appear on a receipt.  
     
    How long should records be retained?  
     
    In general, records must be retained for at least five years from the date a taxpayer lodges their tax return, or if they have claimed a deduction for the depreciation of an asset it is five years from the date of the last claim for decline in value.  
     
    While all care has been taken in preparing accurate information the Institute of Chartered Accountants cannot be held responsible for actions and or decisions based on information contained above.