How to avoid penalties when doing your tax return

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It’s that time of year – tax time! If you have a job, odds are you’ll need to lodge a tax return, and with that comes tax regulations. Knowing the do's and don'ts when lodging your tax return is always a good idea.

To help you feel confident in lodging your tax return this year, here are some tips to stay on track and avoid penalties when lodging your tax return.

1. Understand your tax obligations

Before anything else, understanding the different areas of tax would help you lodge your tax correctly and avoid any penalties. The Australian Taxation Office (ATO) provides a comprehensive guide and resource to help you understand what you need to pay and when. Some of the key taxes include:

  • Income tax is a tax where we are “required to pay” but generally  this is deducted from your pay, meaning you would only need to check if your income and tax deductions are accurate based on your salary and tax bracket. This can be easily done by using the ATO tax calculator.
  • Goods and Services Tax (GST) is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia. Most of the daily products purchased, like food, medicine and many others, are GST-free, meaning they are exempt from GST, whilst the luxury goods we buy, like clothes, typically already include GST.  Unless you own a business, it’s likely you may not need to lodge anything for GST, but you can check for details around this on the ATO website here.
  • Medicare Levy is an amount (2% of your taxable income) you have to pay in addition to your taxable income. The medicare levy helps fund some of the cost in Australia’s public health system.There are certain cases where you could have an exemption or reduction to your Medicare levy, find out more here.

View the complete ATO guidelines for more information on understanding your specific obligations better.

2. File your tax return on time

Managing the date you file your tax returns and lodgements may be one of the easiest ways to avoid penalties on lodging your tax return. However, it’s also one of the most common reasons people receive penalties from the ATO! 

Tax return dates in Australia typically remain the same every year, with July 1st marking the beginning of tax time and October 31st marking the last day to submit your tax return.

When you forget to lodge your tax return, several penalties may apply, ranging from a warning to imprisonment. So, sticking to these dates and filing your tax return on time is important! Here is ATO’s webpage explaining in detail all the different penalties for not lodging your tax return.

3. Stay organised

Maintaining an organised record of income, expenses, invoices, receipts, and other financial documents could help provide accurate tax reporting for yourself or your tax agent. Additionally, they can serve as evidence in any case of mistaken claims, an audit, or a query from the ATO.

Another great way of staying organised is to be on top of any changes to tax laws and regulations, as they could impact your tax return and may require additional documents. One of the most recent examples is a change in tax brackets where the ATO has adjusted the range of taxable income. For tips on things you could do to be prepared to lodge your tax return, check out our article on How to start preparing to lodge your tax return here.

One way to keep informed about new regulation changes is to check for updates on the ATO website. 

4. Seek professional advice

Navigating Australian tax law can be complex, especially if you have a unique or complex financial situation. This can range from as simple as what tax bracket you are in to as complex as getting married and having combined income streams. Talking to a qualified tax professional could help you break down technical details and better understand what you need to know to avoid paying penalties at tax time. 

If you are unconfident or uncertain about your tax return, you could consider speaking to tax professionals like H&R Block, as this will offer you peace of mind during tax season. 

Here is some information about the benefits of using tax agents like H&R Block that you might want to consider when planning to lodge your tax return this year.

These are some general guidelines for complying with your tax responsibilities and avoiding any fees and penalties that may come with tax time. But remember, everyone’s circumstances are different, so while these are some tips you could consider, finding a way that works for you is as important!

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