Tax time 2021: Lodge early at your peril
The Institute of Public Accountants has issued a caution to people planning on jumping in too early with this year’s tax returns, having recognised the “huge incentive” on offer.
“There are always lots of variables such as COVID-19 related payments to be considered in submitting tax returns for the 2020-21 financial year,” cautioned IPA chief executive Andrew Conway.
Mr Conway explained that this year in particular there are other variables that will entice individuals to lodge early due to an expectation of a larger than normal refund on offer. Namely, many taxpayers are set to benefit from claiming working from home expenses, which could be worth up to $1,500. Then there is the Low Middle Income Tax Offset (LMITO) worth up to $1,080 per individual, and up to four months of backdated stage two tax cuts that will be refunded this year worth potentially $800.
“We understand that some individuals have been adversely impacted by COVID-19 through loss of employment or reduced earnings and they will want to get their hands on their refund as quickly as possible,” said Mr Conway.
According to Mr Conway, the big danger in moving too quickly is the limited pre-fill information, which progressively appears well after the end of the financial year. The ATO receives a plethora of data from other government agencies such as Services Australia and the Land Titles Offices. In addition, there is data coming from third-party providers such as financial institutions, share registry companies, and companies and trusts paying dividends or distributions.
Taxpayers who engage in side hustles are also being reminded to declare this income as the ATO does tap into data from e-commerce platform providers such as eBay, Airbnb, Uber, cryptocurrency exchanges etc.
“So, it is no longer just interest, dividends, and trust distributions that the ATO will be looking for. Gains on property and cryptocurrency transactions, side hustles on e-commerce platforms, contractor services performed in sectors which have been previously found to be non-compliant, derivative trading etc. are amongst the information that the ATO will compare with what has been lodged,” said Mr Conway.
“If someone has any income from these varied sources, then it is even more important not to lodge early until this data has had time to hit the pre-fill records."
Another reason to hold fire, is that employers will have until 14 July 2021 to finalise single touch payroll data and the ATO will not start processing returns until after 7 July.
“The ATO will also 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,” said Mr Conway.
“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. The ATO already amends quite a number of returns post lodgment. Discrepancies will create reverse workflow and expose taxpayers to interest and/or penalties.
“We recommend not to rush in too early and seek advice from your public accountant if in doubt.”