Try not to set off the alarm
A few tips can cut the risk of scrutiny by the tax man
EACH year the Australian Taxation Office reveals its targets for this year’s tax season.
While the ATO computers analyse all tax returns against varying benchmarks, this year work- related expenses ( especially laundry and clothing deductions) as well as investment property income and deductions will receive closer attention than normal.
With the most powerful computers in the country matching data from just about every facet of your financial life, there really is no escaping a tax auditor’s gaze.
The tax office has a scheme to match consumption data ( instead of just income) against tax returns of individuals.
For example, they look at those people who have bought such things as boats, race horses, antiques and luxury cars. They then check the tax returns of those people to see if they can “really” afford those items. It has turned up some amazing results.
The best advice to escape trouble: don’t push the envelope. If you attract the attention of the ATO with a few small mistakes, you might quickly find your records being scrutinised top to bottom.
So as group certificates start to hit the mailbox, take a second to set a reminder for these common tax mistakes.
Forgetting to report income is very easy to do and, thanks to the ATO’s comprehensive data matching systems, very easily detected. Think interest income, short- term contract or freelance work, government benefits, bonuses, dividends or any other passive income that might have come into your account.
Last year the ATO crossreferenced tax return information against almost a billion transactions provided to it by third parties to track down omitted income and incorrectly claimed offsets.
Even the records from AirBnB and Uber are given to the ATO, so the “sharing” and digital economy is caught by the data collection program.
That resulted in a huge number of taxpayers getting a call from the tax office for dicey discrepancies. Don’t be one of those caught this year.
UNCLEAR EXPENSE CLAIMS
It is important to ensure all eligible tax deductions are taken advantage of to avoid paying more tax than necessary. But don’t overstep the line. There is plenty of information on the ATO website and throughout the MyTax program, so doing it yourself is no excuse for ignorance either.
Be sure to check out any special deductions applicable to your circumstances, but don’t go claiming things that push the envelope.
We recently read a suggestion from one “expert” claiming women could buy a $ 2000 handbag and claim it as work deduction if it carried their laptop. While claiming a computer bag is deductible, we reckon claiming a designer handbag pushes it a bit far – a too- smart- by- half move that could get you into trouble.
As already mentioned, it only takes one or two little fudges and suddenly the tax man will be going through your records with a fine- tooth comb. Don’t take the risk.
This sounds a bit obvious, but there are lots of people who get behind in lodging their tax returns and are then too scared to catch up. It’s worth noting that tax agents have a bit longer to get returns in, so if you can’t afford your tax bill or are really late it may be worth approaching a professional to lodge for you.
Remember, fines apply if you miss the end of October deadline, but the ATO is usually pretty lenient in applying these and not such a big bad guy.
The tax office is always willing to negotiate payment plans for outstanding tax and provide help to those in need, so pick up the phone and get your tax filings back on track this year.
RECKLESS RECORD KEEPING
The number of times that I’ve had people say “I’m getting audited, what do I do?”, followed by the revelation their records are a mess or even nonexistent, astounds me.
If there is one thing you do to stay safe at tax time, keep better records.
Not only does good organisation make any audit a much easier process, but it helps you understand your financial position better, identify extra deductions and ultimately get yourself in a better tax position.
So while you’re detecting deductions this year, also spend some time making sure you’re doing the right thing by the tax man too.
It can save a lot of time, trouble and money down the track.