What’s happening on 31 October? Hint: it’s not Halloween! To avoid a tax nightmare at the end of the month, get your 2017 paper work to us as soon as possible so that we can file your tax return for you on time. To help you prepare for your tax return, here are some tips on the types of claims that are now coming under scrutiny by the ATO, and what you need to do to minimise your chance of being audited.
What do we need?
So that we can process your tax return smoothly and quickly, please supply us with the following:
- Tax File Number (new clients);
- ABN (for any freelance or contract work);
- annual payment summary issued by your employer detailing how much your earned and how much tax you paid in the financial year;
- ABN-related summary of earnings and copies of all invoices;
- private health insurance annual statement – required to avoid Medicare Levy if earnings are over the threshold;
- investment property annual statement – outlining rental income earned and expenses to be offset;
- bank statements – these can be used as records of purchases, against which you may be able to claim deductions;
- utility bills if you need to claim home office expenses;
- receipts of work-related expenses;
- logbook, or diary for work-related expenses (ie, car, travel).
If you’re unsure about what claims are appropriate in your industry, make an appointment with us, or give us a call and we can go through this with you.
When considering your work-related claims, keep in mind that the ATO is coming down hard on excessive or false claims under their “don’t dodge when you lodge” campaign.
Taxpayer pitfalls in the Digital Age
The ATO is coming down hard on excessive or false claims under their “don’t dodge when you lodge” campaign.
Aided by sophisticated analytical technology, the ATO can use real-time data to assess and compare claims across occupations and income brackets, which means, as ATO Assistant Commissioner, Kath Anderson states “wrongdoing can’t fly under the radar. If a claim raises a red flag in the system, auditors will investigate further”.
In 2015–2016 the ATO conducted around 450,000 reviews and audits of individual taxpayers, resulting in adjustments of nearly $1 billion in income tax, and prosecuted over 1,300 taxpayers.
So let’s revisit the areas the key things to remember when preparing your tax return.
On the ATO’s radar
Genuine work-related expenses are generally deductible under tax law, but those coming under increased scrutiny this year are expense claims relating to:
- vehicles – including those for transporting bulky equipment;
- deductions for travel, internet and mobile phones, and
Common claim mistakes
The ATO has also highlighted the following trouble zones for work-related expenses claims:
- making claims for home office, mobile phone and computer expenses without any evidence supporting how the claims were apportioned between private expenses and work-related expenses;
- incorrectly claiming travel between home and work as a work-related expense; and
- receiving a travel allowance and claiming the full amount without actually having spent that much.
Golden rules of claims
To help you make sure you are claiming to what you are entitled, here are the ATO’s three golden rules:
- You have to have spent the money yourself and can’t have been reimbursed by your employer.
- The claim must be related directly to earning your income.
- You need a record to prove a claim.
Whilst you don’t need to show receipts for a standard claim up to $300, you must be able to show how you estimated the claim for deduction if asked by the ATO.
The ATO will also continue to review excessive claims for work-related expenses, and will contact employers to verify what it considers to be any “unusual” claims.
Here are some tax case studies which provide examples of what cannot be claimed and the penalties for incorrect and false claims.
False claims – car, laundry and self-education
A labourer claimed falsely for a number of deductions, including for his car, self-education, clothing and laundry work-related expenses of over $10,000 over two years. He was charged with three counts of recklessly making false or misleading statements and had to pay penalties and fines. He was unable to provide any receipts or records, and when the ATO spoke with his employer they confirmed he was not required to use his own car at work, he did not have any work-related study, and that the employer supplied and paid for his required work-related clothing and his laundry costs.
Repeated failure to lodge
A landscaper neglected to submit tax returns over a 12-year period, despite being given adequate opportunity to comply with lodgement obligations. He had two previous convictions for failing to lodge (income and GST returns) and failing to comply with a court order in relation to the same income tax returns. On those occasions, he was fined $50,000 and $63,600 respectively in March 2015 and October 2015. The landscaper was found guilty and convicted to eight months’ imprisonment. The Magistrate stated that sentencing was the only appropriate option, and commented that the previous fines imposed had not been an adequate deterrent and the community needed to know that there were serious consequences for repeatedly not lodging tax returns. This term of imprisonment was suspended, subject to a 12-month good behaviour bond with an order to lodge the required returns within six months or the landscaper would be sent to jail.
We’re here to help
Avoid any trickery and talk to us if you’re uncertain about any of your potential claims, or which records we need to process your return. We’re here to make sure you get a fair and accurate tax assessment.