For the Australian Taxation Office (ATO), the best way to avoid a tax audit is to stick to the rules. As annual tax filing concludes, a lot of taxpayers after lodging their returns hold their breath fearing the ATO might come knocking at their doors. But it shouldn’t be that way.
Every year, the ATO contacts roughly 2 million taxpayers to clarify information submitted in their annual filing. It will no doubt be the same this year but the ATO has reminded us time and again that there is nothing to fear if the annual return is true and correct.
ATO assistant commissioner Karen Foat said that if you follow the regulations and proactively report errors to the office, you can easily avoid a tax audit. It is not always that straightforward though, and even Ms. Foats agreed that “people who have done the right thing are scared when it comes to an audit.”
What does Ms. Foat advise? Ms. Foat insists that the ATO is very reasonable and that if you have done nothing wrong, there is no need to be afraid. Above all, steer away from dodgy claims.
To avoid a tax audit, do not over-claim
“We know that some people think it’s OK to over-claim by a little bit and our message to them is that it‘s not OK. We can’t ignore that,“ Ms. Foat said.
Last year, there’s an $8.7 billion shortfall in tax collected because of dodgy claims. To recover that, a tax audit is done by the ATO.
What to do when contacted by the ATO for tax audit
If you’re not able to avoid a tax audit and are facing one, the ATO will ask you or your accountant for explanation on documents included in your filing. These documents may include receipts, invoices, and logbooks.
Your employer may also be contacted to verify your claimed deductions.
If you or your accountant is contacted by the ATO for tax audit, it’s best to respond and cooperate. It will not serve you to ignore them as your behavior, according to Ms. Foat, could actually determine whether a penalty will be issued or not.
She said, “We find sometimes when we contact people or their tax agent as part of an audit, sometimes they might ignore that contact all together or they might be reluctant to answer the questions we have.”
“That doesn’t go well for people. They’re more likely to face penalties if they don’t engage and they’re more like to have those claims removed.”
How the ATO deals with intentional fraud
If you’ve made a mistake in lodging your tax return, you can amend it on the ATO’s myDeductions application. Intentional fraud could result in prosecution.
In June, one taxpayer who was previously warned by the ATO for false claims for three annual tax returns was convicted of criminal offenses. The taxpayer falsely claimed clothing expenses on top of incorrect charitable donations.
The tax dodger was ordered to repay over $45,000 falsely claim expenses and was fined $20,000 in penalties and court fees by the ATO.
The best way to avoid a tax audit is to file tax returns correctly. If you’ve made a mistake, rectify immediately and bring to the ATO’s attention.
If you get contacted by the ATO for tax audit, cooperate fully and do not ignore as the issue will not go away. Remember, your behavior plays a role in whether the ATO will penalized you or not.
If you’re being audited or if you’re looking for accountants in Mornington, get in touch with us here at Sphere Accountants & Advisors. We can help lower you taxes and ensure your finances are in order. Contact us today!