Do I really need an accountant to prepare and lodge my tax return?
The short answer is – it really depends on your circumstances.
Taxation can be a complex area of knowledge relying on a mixture of legislation and case law where “the devil is in the detail”. Changes can occur from year to year and it can be challenging for those who are not in the accounting field to deal with the shifting landscape. Climate changes such as the emerging ‘sharing economy’ and the rise of cryptocurrency also pose new challenges for tax compliance.
Relatively simple salary and wage earners with minimal or no deductions can prepare their income tax return using the Australian Tax Office’s (ATO) myTax system (formerly etax) after creating a myGov account. The myTax system pre-populates information reported by employers and institutions, including salary income, interest on savings accounts and private health insurance details. It is not designed to be a solution for those with more complex returns. myTax still requires the taxpayer to confirm the information is complete, enter any missing information and complete a legally binding declaration stating the return is correct.
Changes currently in the pipeline (refer ‘single touch payroll’) will allow real-time reporting to the ATO. It is not a far-fetched scenario to think that in the very near future, some taxpayers may choose not to lodge a tax return and instead receive a default notice of assessment.
It is well publicised in the media that the ATO is actively targeting taxpayers who may be incorrectly claiming work-related expenses and clothing/laundry costs. While technology may assist with tax compliance for taxpayers with simple returns, it will also make it easier for the ATO to dissect data, flag inconsistencies and further investigate lodged tax returns. Having business activity, investment income and deduction claims above the industry average will all put you in a higher ATO audit risk category.
Not having a tax accountant assist with the preparation of your income tax return can result in a greater risk of falling foul of the rules, or not minimising your tax effectively within the framework.
Common occurrences include:
- Omitting assessable income
- Claiming expenses that are not deductible
- Claiming items that should be ‘depreciated’ over a number of years
- Incorrect apportionment of deductions for work/business use
- Missing or not maximising allowable deductions
- Including income or expenses in the wrong section of the return
Benefits of using a tax agent or accountant to prepare your tax return include:
- Lodgement due date extension – from 28 October to 15 May (in most cases)
- Advice on what needs to be included in your return
- Ensuring you are maximising your allowable tax claims
- Advice around record keeping and implementing systems to manage your tax affairs
- Liaising with the ATO on your behalf for taxation matters including audit activity
For some industries, using a tax accountant that specialises in your particular profession can be extremely beneficial. For medical professionals, using a specialist taxation accountant is recommended due to:
- Quirks particular to the industry e.g. salary packaging, service fee arrangements, rights of private practice, GST
- Higher expenses and deductions relative to the average taxpayer e.g. training fees, professional development, subscriptions and equipment
- Rapid increase in complexity of affairs relative to other professionals
- Gradual shift to being ‘in business’ e.g. locum work or private practice
- Dealing with taxes applied to higher income earners e.g. Medicare Levy Surcharge, excess contributions tax, ‘Division 293’ tax
Lodging an annual tax return is a matter of compliance and this in isolation does not necessarily add value to your finances and decision making. Real value lies in the conversations that are initiated while undertaking the preparation of your return. Utilising the services of an accountant, will allow parallel discussions on your overall finances and ensure that you are “tax aware” when making any financial decisions (e.g. purchasing a property or investing). An accountant can also provide recommendations on structuring your finances so that you are more tax efficient in the long-term. You can make the process much easier for both your tax agent and you by pre-preparing what you need, meaning your refund will be in your pocket sooner. Read our previous article here which covers 15 things to know about what to collect and when for your tax checklist.
Establishing a relationship with an accountant early in your career will ensure you are aware of potential issues in advance, receive ongoing advice and allow you to build rapport with a trusted lifelong advisor. Should you have any queries, a DPM tax adviser would be happy to meet and discuss the details of your next tax return with you. You can book a free no-obligation initial consultation here.
Disclaimer: * The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.