Now that it's Tax Time, a small but significant proportion of Aussie taxpayers will find themselves subject to some unwelcome scrutiny from the ATO because they have got their tax return wrong.
Falling foul of the ATO can be stressful and potentially expensive in terms of extra tax payable, interest and penalties so the key to avoiding that situation is to stay out of trouble in the first place.
So, what are the most common causes for unwanted ATO attention?
Not including all of your taxable income on your tax return is a sure fire way to get into trouble with the ATO.
Even if you are relying on information pre-filled by the ATO themselves, ultimately the responsibility for ensuring that you've included everything rests with you so it pays to take the time to ensure you've got it right.
Amongst the most common errors – inadvertent or otherwise – are these:
•Not disclosing capital gains on asset disposals such as shares and property.
•Undeclared foreign income. If you have income producing assets (such as a business or a rental property) outside Australia, you receive investment income from overseas shares or bank accounts, or you have overseas employment income, you must declare all of that in your tax return.
•Understating or omitting bank interest. Many people receive quite small sums of bank interest, sometimes so small that it's easy to overlook. Banks report all the interest they pay to the ATO so any discrepancy is easy to pick up.
•Not declaring business takings. If you run a small business and don't declare all your sales, expect the ATO to take an interest. The ATO is looking particularly closely at cash-only businesses. Their perception is that in this day and age, the only reason for a business to be run on a cash-only basis is to avoid tax.
The ATO has a collective bee in its bonnet about excessive work related deductions at the moment and is focusing closely on employees who claim more than they are entitled to.
Remember the golden rules of work-related deductions:
•Only claim for items you actually spent the money on
•Don't claim for private or domestic costs, like the daily commute to and from work
•Keep records to support all your deductions
The ATO appears to be particularly troubled by taxpayers taking advantage of the limited number of concessions available to claim work-related deductions without substantiation, for instance the concession which allows up to $300 of deductions to be claimed without receipts.
If you intend to take advantage of that concession, you might not need receipts but you might still find the ATO asking for proof that you actually incurred the expenditure.
If you're riding around in the latest Rolls Royce and enjoying harbourside living in one of the ritzier Sydney suburbs, but only declaring income of $10,000 on your tax return, the ATO will be looking very closely indeed at you.
The ATO is able to assess the assets you own – cars, properties, boats, etc – and calculate the approximate amount of income you would need to support your lifestyle. If the amount of income you're actually declaring is significantly less, you'll trigger alarm bells at the ATO.
As well as traditional sources of third part data like records of property purchases and sales, the ATO even scrutinises social media, so those Instagram pictures of you enjoying the high life in the Caribbean might not sit too comfortably if your declared income is less than the tax-free threshold!
The key to getting your tax return right is to get professional help from a tax agent such as H&R Block. Given the complexity of tax law, it's much easier to make an inadvertent mistake if you use the ATO's self-lodgement service myTax.
Sure it's free, but the cost of a tax audit can well and truly outweigh that benefit!