Sometimes inconsistencies within our individual and business tax can cause significant issues at tax time and may trigger an investigation or full audit from the Australian Taxation Office (ATO). Inconsistencies can occur as a result of honest misjudgements but can also unfortunately be deliberately deceptive too.
The Australian tax system is intended to be fair to everyone, so it’s crucial that individuals as well as large and small businesses pay the correct amount of tax every year.
While not all investigations end in a full audit, annually, the ATO contacts approximately 2 million taxpayers to clarify information submitted in their annual lodgements. While many individuals and business owners are concerned about being audited, the ATO has reminded us many times that that there is nothing to fear as long as your annual return is true and correct.
Individuals that primarily deal in cash or have experienced large variations in income are more likely to attract attention from the ATO. Anyone can be contacted, so its important to stay on top of your paperwork and make sure you have receipts and documentation to support all your claims.
Here are a few helpful tips:
DOUBLE CHECKING YOUR CALCULATIONS
One of the most common triggers for an ATO audit is transactions failing to add up. This is quite a particularly difficult area for business owners. They can find themselves in the spotlight for all sorts of inconsistencies, such as conflicts between their income tax return and BAS on total sales and expenses.
Business owners should also be mindful that failing to pay employees the correct superannuation could result in a review of superannuation guarantee obligations. This can quickly snowball into audits of income tax, GST and fringe benefits tax. Working with a tax agent is a useful way to make sure you are checking all the boxes as an experienced accountant can identity any errors and ensure you are aware of them.
ON TIME LODGMENTS
Staying consistent with your tax returns and allowing plenty of time to put together and lodge your documents means you are less likely to make mistakes and results in a good compliance history. This means you’re less likely to undergo any type of investigation when you happen to submit your returns later.
Make sure you are holding on to receipts for every single claimable item. These can be digital records as long as the date, vendor, cost and details of the item are all clearly visible. As a business, you must keep detailed records for all transactions related to your tax and superannuation affairs as you start, run, sell, change or even close your business. Keeping accurate and extensive records for all your business transactions will also help you manage your business and its cash flow.
BE EXTRA CAREFUL WHEN TAKING CASH
The ATO is conscious that those who operate in the cash economy (such as shopkeepers, restaurant owners and taxi drivers, to name a few) may be more likely to fail to declare all income.
While this isn’t a cause for concern, it does mean that you can expect to be audited at any time. So be very careful and thorough about having all your paperwork in order. It is easy to avoid any issues by being extra cautious with your records to prove you’re not under-declaring your cash income.
ONLY DECLARE WHAT YOU ARE ENTITILED TO
There are many different deductions you are entitled to claim when doing your tax return, although it varies greatly depending on your profession or industry. One thing remains the same however, you must only claim genuine deductions, and you need to have receipts or documentation to support your claims. Claiming incorrect deductions means you won’t just have to pay it all back if you get caught but you’ll find yourself hit with a substantial fine.
If the ATO is able to easily recognise what you’re claiming, they are less likely to need to dig deeper. But if you have a lot of unclear or questionable claims in your tax return then they are more likely to want more information and possibly written proof of your claims.