AS we head through tax time, a small but significant proportion of Australian taxpayers will find themselves subject to some unwelcome scrutiny from the Australian Taxation Office (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?
Failing to declare income
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.
Among the most common errors – inadvertent or otherwise – are the following:
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 interest payments 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. Its 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.
Claiming deductions you’re not entitled to
The ATO has an interest in excessive work-related deductions at the moment and is focusing closely on employees who claim more than they are entitled to.
Remember the following 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.
It doesn’t matter what you’ve spent, if you can’t prove that you spent it, you can’t claim it.
So, gather together all those receipts and invoices.
If you’ve lost a receipt, try to get a copy from the retailer.
If that fails, a bank or credit card statement might do if you can clearly identify the item.
Don’t try to claim if you don’t have the paperwork, you’re leaving yourself open to an ATO audit.
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.
Best of all, if you get a tax agent to help you lodge your return, the cost is itself tax deductible.
H&R Block Tasmania has been a family business since 1982 and has 10 offices statewide employing up to 60 staff through the year.
It offers the full range of tax and accounting services for individuals and small business.
H&R Block can be contacted by phoning 13 23 25 or visiting hrblock.com.au.