Tax Rules

Hi Scott, I am returning to work post-children. I recently started looking for a part-time job, during which time my husband asked me to do his books and admin work. I am legitimately doing two days’ work a week. When we visited an accountant my husband suggested paying me a wage, but the accountant said this is not possible under PSI tax rules (an associate for non-principal work). Is this true?

Danielle

Hi Danielle,

He can pay you … he just can’t claim a tax deduction for it under the PSI taxation rules. (For those of you reading along at home, Danielle is not talking about tyre pressure -- PSI stands for Personal Services Income). Simply put, your husband can’t claim a deduction for the salary he pays you, because you’re not involved in the principal work. Sounds like you have a good accountant!

Scott

The ATO is targetting you this year

This week, in preparation for tax time, I spoke to one of the most powerful people at the Australian Tax Office, Assistant Commissioner Graham Whyte.

Or Whytey, for short.

(I don’t know if anyone has ever referred to him as that before -- but I’m going with it).

Whytey (straight off the bat - no hellos, just tax, tax, tax): “Did you know it’s the 101st year of the tax return?”

Barefoot: “I did not know that.”

Whytey: “Income tax was brought in with the war, in 1915.”

Barefoot: “I did not know that.”

Turns out Whytey’s a treasure trove of tax history, and with good reason: he’s been working at the Tax Office for 35 years. In fact, he’s been there so long that when he started his career, he did tax returns ... by hand.

True dinks.“Back then, I would do 441 individual tax returns every single day”, he tells me.“Why 441?”

“Because there are 441 minutes in a working day”, he says.

Seriously, how freaking hardcore is that? No checking Facebook in those days. Just tax, tax, tax.

Whytey’s career reveals just how sophisticated the tax system has become: a bunch of bureaucrats with muttonchop sideburns and ashtrays on their desks scanning every single tax return have now been replaced by one bloody big computer (my description, not Whytey’s).

The ATO’s supercomputer collects 650 million separate transactions -- cross-referencing bank accounts, share certificates, Centrelink payments and more.

And when I say ‘more’, I mean Facebook. “In certain instances”, Whytey confirmed, though he wouldn’t elaborate. But I will. I’d say it’s a good bet is that if you declare a taxable income of $23,000 but you’re prone to posting selfies in your Ferrari on Facey, don’t be surprised if one of Whitey’s crew hits ‘Like’.

Seriously, these guys are watching you closer than your crazy ex-boyfriend.

So who are the ATO stalking this year?

Well, in the past, just putting a job on the hit list would apparently boost the tax take from workers in that occupation by 22 per cent for the year (like when they targeted Aussie actors who played the starring role in Crocodile Dundee).

This year Whytey says they’re not targeting any one profession.They’re targeting you.

(And me, and every single taxpayer.)

Here’s how it works: let’s say you’re a tradie living in Brunswick. As you’re putting in your tax return, the ATO supercomputer checks your deductions against other tradies living in Brunswick. If your claims are materially higher, the computer will pop up a message that reads: “Hey, buddy. Maybe you should take a second look at what you’re claiming, eh? Otherwise you may get a visit from the Deputy Prime Minister, Barnaby Joyce.”

(Actually, that’s not true -- Barnaby has more important things to do than tax compliance, like threatening to kill Johnny Depp’s handbag dogs.)

However, it is true that the ATO’s system does automatically warn you. And if you don’t heed their warning, Whytey tells me, the ATO will sends out 460,000 ‘please explain’ letters to individuals each year, resulting in an extra $1.1 billion in tax being paid -- which more than covers the cost of the stamps, and the 20,000 staff the ATO employs to lick them. (Seriously, what do they all do?)

In that respect, the ATO's supercomputer could be thought of as a sniffer dog at the airport. It's the first tip-off. Being audited is when the security officers take you into that little room, close the curtains, and pull out the rubber gloves. (And we’ve all seen Border Security. “I didn’t pack my boogie board” is just as lame as “I didn’t do my tax return, so I have no idea why Dennis my accountant claimed my nine-year-old son as an office expense”.)

The bottom line is that the ATO operates under a self-reporting system, which means it’s up to you what you put on your tax return.

Meet Your New Accountant

So if the ATO already has your number -- what extra value can an accountant deliver?

Well, if you’re a business owner they can be invaluable. Same if you have complicated tax structures like family trusts. But if you’re an average wage earner, you don’t need them. (Time to kick H&R down the block.)

Still, 74 percent of Australians use a professional to lodge, according to the ATO -- and they typically pay between $300 and $400.

What do you actually get for that?

A few forms to sign that totally indemnifies the accountant, and the predictably desperate, self-serving pitch, asking if you’d like to open a Self Managed Super Fund (SMSF).

You would?

Kerching!

Would you like audit insurance with that?

Kerching! Kerching!

Seriously, if you’re a wage earner with a simple set of affairs (i.e. most people), you should get a new accountant. In fact, I have the perfect guy. He’s reliable. He won’t get you in trouble. He’ll come to you. And best of all, he’s free.

It’s called ‘myTax’ -- the ATOs supercomputer’s brother from another mother.

With myTax you can do your return on your phone -- in around five minutes -- because the system pre-fills your information. So all you need to do is double-check the info, enter any deductions, and hit submit.

Ah yes, but what about those deductions?

Well, the ATO now has an app for that too. It’s called myDeductions, and it’s actually pretty good.

It allows you to take photos of receipts and enter work-related deductions on the fly. If you’re claiming a car expense, it has a built-in GPS tracker to record car trips. Best of all, it feeds directly into myTax.

The bottom line is that the ATO operates under a self-reporting system, which means it’s up to you what you put on your tax return.

My final question for Whytey could have skewered him -- but he came up with the goods.

“So, who does your tax?”

“Me! I do my own, always have done”, he says.

Tax, tax, tax!

Tread Your Own Path!