24 Sep 14 Ensure the IT5 and IT6 income tests labels are completed correctly
The ATO has advised tax professionals to ensure that the IT5 and IT6 income tests labels are completed correctly. The ATO says that in 2013-14 individual income tax returns, the IT5 and IT6 labels are auto-filled from other labels and sub-labels in the tax return, for all electronically lodged returns. Tax professionals need to check that these amounts are correct prior to lodgment.
When preparing clients' returns, tax professsionals need to complete sub-labels and attribute investment-related income and deductions into three components:
- financial investments – relevant to IT5
- rental income – relevant to IT6
Some returns have been completed incorrectly with general business losses or expenses being attributed to the ‘financial investments‘ sub-label rather than 'other'. This was also the case for 2012–13 individual income tax returns.
Incorrect completion of the sub-labels could mean overstating clients’ adjusted taxable income. This could result in a reduced entitlement to a private health insurance offset or affect their adjusted taxable income used in calculating certain benefits and child support payments if they are customers of the Department of Human Services.