Sometimes one makes an honest mistake and sometimes it’s more deliberate – either way, it’s the one who loses out.
The Australian tax system has been carefully designed to be fair to everyone, so it’s important that we all pay the correct amount of tax every year. To make sure things stay on track, the ATO contacts around 2 million taxpayers each year to review their tax returns, although not all of these people will be subjected to a full detailed audit.
People who deal predominantly in cash or have experienced large fluctuations in their income are more likely to attract the attention of the ATO. But anyone can be contacted, so it pays to stay on top of your paperwork and make sure you have receipts and documentation to support all of your claims because, even if you have everything in order, a full audit from the ATO can take up a huge amount of time and resources.
So if you want to avoid the hassle, then there are a few smart things you can do to avoid getting audited:
Always lodge your tax returns on time
This is a simple one. Staying on top of your tax returns and allowing plenty of time to put together and lodge your documents means you are less likely to make mistakes. It also means you’re less likely to undergo scrutiny when you submit your returns later.
Review your calculations and check your deductions multiple times
It’s not the most exciting activity in the world but checking your numbers (and checking them again) is a good way to make sure everything is correct before lodging your tax return. It’s easy to make mistakes and working with a tax agent is a handy way to make sure you tick all the right boxes as a good accountant will pick up any errors and will bring them to your attention.
Declare deductions – but only ones you’re entitled to!
There are lots of different deductions you are entitled to claim when doing your tax return, although it varies greatly depending on your occupation or industry. We have put together a handy series of checklists broken down by career that will help you work out what you can claim, and if you work with a tax agent they will highlight any you might have missed so you get the maximum possible refund.
But you must only claim legitimate deductions, and you need to have receipts or documentation to back up your claims. Getting creative with your deductions is a bad idea and you won’t just have to pay it all back if you get caught but you’ll find yourself hit with a hefty fine as well.
Keep meticulous records
Yes, we already said this, but we’re saying it again because it’s THAT important: hold on to receipts for every single item you claim. It’s fine for these to be digital records, as long as the date, vendor, cost, and details of the item are all clearly visible. Generally speaking, written evidence is specifically needed for claims over $300, but it’s a good habit to keep all of your records just in case.
Be particularly careful keeping records when taking cash
Certain jobs and industries (such as taxi drivers, tradesmen, and shopkeepers) rely more heavily on cash payments, which is absolutely fine – provided you keep careful records of all transactions.
The ATO tends to look more closely at cash-based businesses, so be warned that you might be on their radar if you mostly work with cash. But it’s easy to avoid any issues by being extra vigilant with your records to prove you’re not under-declaring your income.
Clarity is king
Making sure each and every tax claim you make is clear and easy to understand will go a long way towards helping you avoid an audit. If the ATO is able to easily understand what you’re claiming and why they are less likely to need to follow up. But if you have a lot of vague or suspicious claims in your tax return then they are probably going to come back to you wanting more information and possibly written proof of your claims.
There are plenty of “experts” out there who will tell you that they can maximize your deductions and get you more money using dubious claims. But don’t forget that YOU are the one who is responsible in the end and you’re the one that will get in trouble if you get caught. If in doubt or if you need any assistance, contact the ATO directly to ask questions or work with a reliable, trusted source such as the team at KPG Taxation.
At the end of the day, nobody wants to be audited by the ATO, and taking a few simple steps can reduce your chances of getting the dreaded call, which means greater peace of mind, not to mention saving yourself a lot of time and hassle.