10 Common Tax Return Mistakes — and How to Avoid Them

Each year, the ATO identifies thousands of incorrect tax returns. Most errors are unintentional, but they can still trigger audits, penalties, and interest charges. Here are the 10 most common mistakes and how to avoid them.

1. Claiming the $300 Without Receipts Threshold — Too Perfectly

You don't need receipts for work-related expenses under $300 in total — but arriving at exactly $299.95 in a year you usually claim nothing is a major red flag. The ATO sees this pattern constantly. Fix: Track your actual expenses throughout the year. If they're under $300, fine — but don't fabricate the number to hit the threshold.

2. Claiming Non-Deductible Clothing

Plain clothes (even if your employer requires "black pants and a white shirt") are not deductible. Only occupation-specific clothing (chef pants, hi-vis, steel-caps) or compulsory uniforms with your employer's logo qualify. Fix: Check your award or employer policy before claiming clothing.

3. Forgetting to Include All Income

The ATO receives data from employers, banks, Centrelink, share registries, and cryptocurrency exchanges. They already know about most of your income. Forgetting to declare bank interest, government payments, or casual side hustle income is a guaranteed way to get flagged. Fix: Review the pre-filled data in myGov carefully and add anything missing.

4. Overclaiming Home Internet and Phone

Claiming 100% of your home internet or phone bill for work use is rarely accurate. Unless you have a dedicated work-only phone and internet connection, the ATO expects a reasonable apportionment. Fix: Keep a 4-week diary of work vs personal usage to calculate a defensible percentage.

5. Misunderstanding the Work-from-Home Rules

The fixed rate method (67 cents/hour) covers electricity, gas, internet, phone, and stationery. You can't claim these separately if you use the fixed rate. Many taxpayers double-dip without realising. Fix: Choose one method (fixed rate or actual cost) and stick to it consistently.

6. Incorrectly Claiming Rental Property Expenses

Common errors: claiming initial repairs on a newly purchased property as immediate deductions (they're capital), failing to apportion expenses for private use of a holiday home, and claiming travel costs to inspect a pre-2019 property. Fix: Get a depreciation schedule from a quantity surveyor and use a specialist rental property tax agent.

7. Forgetting the Medicare Levy Surcharge

If you earn over $93,000 (single) or $186,000 (family) and don't have appropriate private hospital cover, you must pay the MLS. Many people mistakenly think they're exempt or forget to adjust their private health insurance status. Fix: Check your income and hospital cover status before lodging.

8. Mixing Up Business and Personal Expenses

Sole traders and small business owners often claim personal expenses as business deductions. The ATO scrutinises vehicle expenses, travel, meals, and entertainment especially carefully. Fix: Use a separate business bank account and credit card. Only claim business expenses, properly apportioned for any personal use.

9. Lodging Late — and Ignoring Reminders

Late lodgement penalties start at $330 and increase by $330 every 28 days (up to $1,650). Even if you can't pay your tax bill, lodge on time. The ATO is much more willing to set up a payment plan than to forgive late lodgement penalties. Fix: Set calendar reminders for 31 October (if lodging yourself) or register with a tax agent by 31 October for the extended deadline.

10. Not Seeking Professional Help When Needed

Complex situations — investment properties, capital gains, side businesses, foreign income, share trading, cryptocurrency — can quickly overwhelm a DIY return. The cost of mistakes often exceeds the cost of a tax agent. Fix: If your tax situation has changed significantly, invest in professional advice. A good tax agent saves you more than they cost.

The ATO's Focus Areas for 2025-26

The ATO has announced these priority audit areas:

• Work-from-home expense claims (especially inflated hours)
• Rental property deductions (interest, repairs, travel)
• Cryptocurrency transactions (capital gains and losses)
• Gig economy and side hustle income (Uber, Airtasker, OnlyFans)
• Overclaimed capital gains tax discounts

How the ATO Catches Mistakes — and How to Fix Yours

The ATO detects errors through data-matching (bank, employer, share, property and crypto data it receives automatically), analytics that benchmark your claims against your occupation, and risk-scoring that targets returns with unusual patterns — like the exact $300 deduction, a sudden spike in a deduction category, or income that doesn't match what employers reported. Most reviews start with a letter asking you to explain or substantiate a claim within 28 days.

If you have already lodged and realise you made an error, the fix is straightforward: log into myGov, open your return, and lodge an amendment. Amendments for most items can be made within two years of the original assessment. If the mistake means you owe more tax, amending voluntarily before the ATO contacts you is the best possible position — the ATO's voluntary disclosure rules mean penalties are usually reduced significantly or removed entirely, and interest is charged only on the additional tax, not on top of a penalty.

If you missed a deduction, the same amendment process works in your favour — you can claim it within two years and receive the extra refund. The one thing you should never do is ignore a letter from the ATO; an unaddressed review becomes an audit, and an unaddressed debt grows with the General Interest Charge.