According to the ATO, this tool makes it easier for individuals to keep deduction records, and will allow this information to uploaded and included in your 2016 income tax return. You can also keep records of car trips and store photos of receipts.
So, are we recommending this new tool to our clients? That depends.
While it might seem early to be thinking about your 2016 tax return, you must keep records to prove you paid for expenses in order to deduct them. Unfortunately, it seems entering the details of your expenses into the ATO’s new app will not be sufficient. The receipt (the original, an electronic copy, or other documentation) must also be kept for up to 5 years after your return has been lodged.
When it comes to using myDeductions, while you can take a photo of a receipt as you enter the information into the app, this photo may be stored separately from the rest of the information about that deduction. If the ATO were ever to ask you to substantiate your deductions, you would need to be able to produce your records, possibly including this receipt.
From the documentation with the tool, photos of receipts are stored with the rest of the photos on the device, meaning these receipts may be either lost if the device is damaged, or hard to find amongst all of the rest of the photos.
There are other very useful tools that provide more extensive tracking of income and expenditure, including Xero’s Cashbook products, which start at $10 per month, and can provide for saving of receipts with the transaction data, on the cloud, rather than on a device. This gives additional comfort that you can produce all of the information required if the ATO request it.
Using myDeductions will also provide far more information to the ATO than you currently provide in completing your annual income tax return. This will increase the data they have to cross check your deductions, and raise questions if the information provided in your return varies from what you have uploaded using their tool.
In conclusion, if you can maintain the records you need to substantiate your deductions outside of using myDeductions, then continue to do that. If this is proving difficult, or you cannot keep this information, myDeductions may be for you.
You can find more information about myDeductions on the ATO’s website here.
If you would like to discuss other ways to maintain the information required to substantiate your deductions come next tax time, please give us a call on 1300 884 797.