Each year, the ATO reveals what they will be targeting when it comes to tax returns. But these aren’t the only reasons you may be selected for an audit. The last thing anyone wants is to be audited, so what are some of the most common reasons you might be selected and how can you avoid it?
1. Claiming deductions you’re not entitled to
As tempting as it can be to claim everything that Dave at the pub said you could, it may end up costing you. Each industry and occupation has its own allowable deductions, so just because your mate can claim something, it doesn’t mean you can.
While some unusual deductions are allowed, including garden gnomes and dogs, it is your responsibility to know what you can claim and what you can’t. If you have a good tax accountant they will be able to advise you on this and help you maximise your claim.
2. Not declaring all of your income
The ATO has some of your tax return form already prefilled which makes it easier than it used to be. However, it is still up to you to ensure the details are correct.
Capital gains from property and shares, undeclared foreign income, understating or omitting bank interest and not declaring all business sales (e.g. cash in hand income) are some of the common mistakes with declaring income.
Be sure to keep accurate records of all your income and expenses, proper proof of everything and make sure you list it all on your tax return.
3. Living the high life
It’s fine to live like the Kardashians if you have their income. But buying yachts, luxury cars, antiques and other high lifestyle purchases can be a huge red flag.
The ATO uses data matching software to compare declared incomes with lifestyles. This means their software connects your spending habits with the lifestyle you’re living with to the income you declare. Living well beyond your means, or what you should be able to afford, may bring you under suspicion.
This doesn’t mean you can’t have a great lifestyle. It simply means that if you’re trying to hide your income, the ATO will find out.
So what can you do to avoid an audit?
Although audits can create extra administration, as long as you keep accurate records and are honest you should be fine.
But one of the simplest ways to avoid an audit, or to ensure everything goes smoothly if you are audited, is to seek the advice of a tax accountant. It’s their job to know what you can and can’t claim, complete the forms and advise you accordingly. By using a good accountant you should feel confident that you’re getting the maximum refund you’re entitled to. They should also put tax reduction strategies in place for the future to give you a financial edge.
When using an accountant it’s still your responsibility to ensure you give accurate information. This includes being honest with your deductions and declaring all of the income that you earn.
However the difference between having a tax professional advise you compared to doing it yourself can be thousands of dollars. Wouldn’t you rather have that money in your pocket?