In Australia, the tax system is complex. It often creates confusion for individuals and businesses alike. Some issues appear over and over again. Understanding them can help avoid mistakes and reduce stress during tax time. For Australians living overseas or those moving between countries, Bates Cosgrave’s Australian Expat Tax Guide offers detailed insights into handling residency, reporting obligations, and common pitfalls.
One of the most common concerns is tax residency. Many people believe that staying less than 183 days in Australia makes them a non-resident. This is not always true.
The Australian Taxation Office (ATO) applies several tests to determine residency. These include:
Tax residency status affects what income is taxable in Australia. Residents are taxed on worldwide income, while non-residents are taxed only on Australian-sourced income. Misunderstanding residency rules often leads to incorrect returns, making guidance like Bates Cosgrave’s Australian Expat Tax Guide particularly useful for clarity.
Many taxpayers claim deductions for work expenses. The ATO sees frequent errors in these claims.
Some people claim the maximum allowed without supporting evidence. Others include costs that are private or unrelated to work. For example, car expenses must relate directly to income-earning activities. Driving to and from work usually does not qualify.
Work-from-home expenses are also tricky. The ATO has changed the method for calculating these costs. Keeping detailed records is now more important than ever.
Australians own a large number of rental properties. But not all owners report income and expenses correctly.
Common mistakes include:
Repairs made to restore a property to its original condition can be deducted. But improvements that add value or change the property’s use must be depreciated over time. The ATO targets incorrect claims in this area.
Cryptocurrency use has grown in recent years. Many taxpayers are unclear on how it is taxed.
The ATO treats most crypto activity as capital gains tax (CGT) events. This means that selling, swapping, or using crypto to buy goods can trigger tax consequences.
Keeping records of all transactions is essential. These records should show the date, value in Australian dollars, and reason for the transaction.
Crypto income, such as from mining or staking, may also be treated as assessable income. Many people don’t realise this and fail to report it.
Small business owners often raise questions about income reporting and expense deductions. The ATO expects businesses to keep clear records. This includes income from all sources and detailed logs of deductible expenses.
Some common issues are:
There are also questions about the difference between capital and revenue expenses. Capital expenses usually relate to acquiring assets. These are written off over time. Revenue expenses are used up in the course of generating income and can be claimed in full.
Superannuation is a key part of the Australian tax system. It raises many questions each year.
Individuals often ask whether they can claim a deduction for personal super contributions. To do so, they must submit a “Notice of Intent to Claim” to their fund. The deduction must also fit within the contribution cap limits.
Employers face different concerns. They must make contributions by the due dates. Late payments are not tax-deductible and may incur penalties. Some businesses miscalculate the correct amount of super based on an employee’s pay.
Capital Gains Tax (CGT) applies when an asset is sold for more than its cost base. This applies to property, shares, and certain business assets.
Many taxpayers forget that CGT also applies to:
There is a 50% discount on capital gains if the asset was held for more than one year. But this only applies to individuals and trusts, not companies.
Understanding the timing of the CGT event is crucial. It usually occurs on the date the contract is signed, not when settlement happens.
Trusts are used for asset protection and tax planning. But the rules around distributing income are complicated.
Each year, the trustee must make a valid resolution before 30 June. Failing to do this can result in the trustee being taxed at the top marginal rate.
The ATO also looks at:
Incorrect trust distributions can lead to tax penalties and extra scrutiny.
Fringe Benefits Tax (FBT) applies when employers provide benefits to employees outside of regular wages. Examples include cars, free accommodation, and low-interest loans.
Many businesses underestimate their FBT obligations. They may not keep track of benefits or value them correctly.
Certain exemptions and concessions are available. But these must be applied properly. The ATO often checks whether employers are reporting and paying FBT correctly.
Missing deadlines is a common issue. Tax returns, BAS statements, and super payments must all be lodged on time.
Late lodgment can lead to penalties and interest charges. The longer the delay, the more the fines increase.
The ATO may also impose penalties for:
Tax agents can help manage lodgment schedules and avoid late penalties.
Businesses often misclassify workers as contractors. This can lead to unpaid super, PAYG withholding, and other obligations.
The ATO uses several tests to decide if a worker is an employee. These include:
Using an ABN is not enough to prove someone is a contractor. Getting this wrong can result in back payments and legal action.
Goods and Services Tax (GST) is a key part of Australia’s tax system. Errors in GST reporting are common.
Some businesses forget to:
Others misclassify sales or use the wrong accounting method. These mistakes can lead to underpaid tax and audits.
Businesses must keep records for five years. They must also ensure they understand the difference between GST-free and input-taxed sales.
Recently, the ATO has paid more attention to how family trusts distribute income. Section 100A of the Income Tax Assessment Act may apply if trust income is paid to one person but used by another.
This often happens when income is appointed to adult children at lower tax rates but then used by parents. If the ATO finds a "reimbursement agreement," they may cancel the tax benefits.
Trustees must ensure distributions are made for genuine reasons. All arrangements should be documented clearly.
At the conclusion of the discussion on frequent tax issues, understanding the nuances of Australian tax obligations—especially for expats—is crucial. For a comprehensive guide to navigating these rules, including residency, deductions, and reporting overseas income, see Bates Cosgrave’s Australian Expat Tax Guide.
