Red flags that can trigger an ATO (Australian Tax Office) tax audit

Failing to lodge your tax return on time

Failing to lodge a tax return on time is a significant red flag that can trigger an ATO audit. Therefore, it is essential to ensure that you always submit your taxes on schedule, as ATO auditors closely track deadlines and non-compliance.

Suppose you find yourself in a situation where your tax return is running late. In that case, it’s recommended to speak with an accountant or other financial professional to help you navigate the process and avoid an ATO audit.

Ignoring or postponing the lodgement of your returns will only put you at risk of being subject to investigation, resulting in potential backdated fees and penalties for not filing on time.

Making mistakes on your tax return

Mistakes on your tax return can be a red flag that may alert to the conduction of an ATO audit. If this happens, it is essential to understand why the audit was triggered and to be aware of the consequences of errors on your tax return.

Understanding the common errors that could trigger an audit is the best way to manage the process and ensure your tax return is accurate to help avoid any penalties. It is highly recommended to seek professional help from a qualified accountant or tax specialist if you are unsure of anything on your tax return or seeking advice about how to proceed in case you are audited.

Claiming deductions, you're not entitled to

When filing your tax return, it’s vital to ensure you’re only claiming the deductions to which you are entitled. Making incorrect or fraudulent claims can alert the ATO, which can lead to an audit.

To protect yourself from unnecessary fines and charges, you should always fulfil your obligations and submit accurate information whenever filing your taxes. If in doubt of any deduction entitlement, seek advice before submitting a claim so that you can be confident of having all your paperwork in order.

Not keeping records of your income and expenses

When filing taxes, it is important to be prepared and vigilant. An often-overlooked factor that can attract an ATO tax audit is inadequate record-keeping of income and expenses.

It is crucial for taxpayers to track their taxable income and related expenses accurately. Failing to do so will create more work for you if the ATO requests additional documents, potentially triggering an audit.

Taking the time when doing your return and accurately documenting your finances from start to finish could save you time if you are ever faced with additional scrutiny by the ATO.

Earning income from undisclosed sources

Maintaining accurate accounts is essential in the eyes of the ATO. Earning income from undisclosed sources may cause concern from the ATO.

It’s important to be transparent with your finances and declare all relevant income sources, whether from investments, freelance work or other sources. Failure to do so could result in significant fines or further implications and investigations. Therefore, businesses should take the necessary steps to ensure their financial statements are accurate and compliant with ATO standards.

Failing to declare all of your income

There are heavy penalties for not declaring your total earnings—criminal charges, such as incurring a fine or imprisonment, and civil charges, including paying back taxes with interest. Therefore, taxpayers need to be aware of these issues and ensure they remain compliant at all times. Doing so will ensure your safety from potential audits in the future.

Failure to comply with your tax obligations can result in severe penalties, including ATO audits. To avoid an audit, ensure you lodge your return on time, keep well-maintained records of your finances, and declare all of your income. If you’re ever unsure about a deduction or something else on your return, it’s always better to ask the ATO for guidance than try to claim something you’re not entitled to — remember, it’s not worth risking an audit!