The Institute of Public Accountants (IPA) has issued a caution to people planning on jumping in too early with this year’s tax returns, explaining that there are a lot of new variables, such as COVID-19-related payments, to be considered.
“We understand that some individuals have been adversely impacted by COVID-19 and want to get their hands on their refund as quickly as possible,” said IPA chief executive officer Andrew Conway.
“Loss of employment; reduced earnings; rental property losses due to tenants being unable to pay or have negotiated a lower occupancy rate; deductions for protective COVID-19 measures such as gloves, face masks, sanitisers; and increased working-from-home expenses are some of the reasons why individuals are planning on lodging early this year with an expectation of a larger than normal refund on offer,” Mr Conway acknowledged.
Agreeing with Mr Conway, senior advocate at the Tax Institute Robyn Jacobson explained that by lodging their taxes early, taxpayers risk making mistakes or inadvertently omitting income.
“It is not necessarily optimal to lodge your return as soon as 30 June ticks over. This is primarily because third-party information, such as from banks, health insurance providers and public companies that have paid dividends, takes a little while to come through to the ATO,” Ms Jacobson said.
“If you rush to lodge your tax return early and not all the right information is available, you run the risk of making mistakes or inadvertently omitting income and having to amend your tax return. Why do your tax return twice when you can get it right the first time with a little patience?”
JobSeeker and JobKeeper
According to Mr Conway, there are several reasons to delay lodgement, including JobSeeker, JobKeeper as well as STP due dates.
He explained that those who have lost their employment this year and have received JobSeeker will need to wait for Services Australia to load this information into the pre-fill, as this entitlement represents income which is taxable and needs to be added to other income.
“Services Australia does not normally withhold tax, so this may adversely impact on the individual’s overall tax situation which may turn a refund into an amount payable depending on personal circumstances,” Mr Conway said.
“Similarly, if the employers have not withheld the proper amount of tax from JobKeeper payments, this, too, can have an impact on the refund amount.”
Another reason to hold fire is that employers with 20 or more employees will have until 14 July 2020 to finalise Single Touch Payroll data.
“Smaller employers have until 31 July 2020 to finalise. If someone has interest, dividends or trust distributions, then it is even more important not to lodge early until this data has had time to hit the pre-fill records.”
Moreover, Mr Conway noted, another COVID-19-related issue this year is where a sole trader is receiving JobKeeper as an active participant.
“This represents income and needs to be included as part of their business income. Also, the cash-flow boost is tax-free and can be excluded from business income,” he said.
Mr Conway also cautioned that the ATO will be continuing to look closely at work-related deductions.
“It has a lot more granular data on what people are claiming, so it is reminding everyone of the three golden rules: you must have spent the money and not been reimbursed, it must relate directly to earning your income and you must have a record to prove it,” he said.
“Our strong message is to wait for the information to become available before you lodge; otherwise, you may end up with an unexpected tax bill and angst down the track.
“Discrepancies will create reverse workflow and expose taxpayers to interest and/or penalties. The variables this year may be more complex, so we recommend not to rush in too early and seek advice from your public accountant.”