Tips to Avoid Getting Your Tax Return Audited

nicolemcmilllon on 31/07/2019 - 17:01
Last edited 01/08/2019 - 20:47 by 1 other user

Hi all, in the past few weeks we have seen an increased number of delayed returns, please explains and even audits this early into the tax season.

The problem is, even if you have a good and legal reason for what they are asking you, sometimes you get stuck with an unpleasant ATO employee who will dig deeper into other aspects of your return just to find something they can go at. Wanted to share few tips to avoid being contacted by the ATO.

Ill break them down into 3 different categories.

Category 1 - Not waiting for the information to be available

Here are a number of really simple reasons that you may be automatically flagged for an amended return/audit.

Not including all or incorrect amounts per your payment summaries (with STP try to ensure the income statement is finalised before lodging)
Not including all interest earned from all bank accounts/term deposits etc
Not including unfranked dividends or not waiting until trust annual tax statements have been issued to finalise your return.
Not including spouse income in your return to avoid medicare levy surcharges
Claiming personal superannuation contribution deductions without notifying the Fund of your intention to claim a deduction.

Category 2 - Things that may require a "please explain"

If your interest deduction for a rental property has been decreasing and is all of a sudden much more than prior years. This may result in a please explain to see if you redrew funds for personal reasons.

If you are claiming motor vehicle expenses in D1 and do not have a registered motor vehicle in your name, they may ask you to prove that you are the beneficial owner of the vehicle. For example that you have a private arrangement with the registered owner and that you pay all costs associated with owning the vehicle.

Category 3 - Most likely to get a full blown audit

Claiming significant donations, especially in proportion to your income. It is very cost effective for the ATO to pursue as they just have to ask for your donation receipts, its usually black or white on whether you have the receipts.
Claiming interest/dividend deductions and not actually having interest/dividend income.
Claiming significant education expenses. To claim courses, textbooks, stationary, the education being undertaken must have a connection to your current work activities and maintain the specific skills/knowledge equired in your current work activities.

That is all for now. Might update as the year goes on. Sorry for rambling.

Financial

Comments

            • bluesky on 04/08/2019 - 15:42

              @MITM: Yes, I try but still get it wrong. Problem is for the company, by last quarter, I usually have not made up my mind how much to pay myself yet, salary-wise. I only decide around tax return time.

              I also stuffed up in myGov – when I exited PAYG in a 3rd qtr before asking for refund. Then, the system would not allow another change, without calling up ATO which I couldn't be bothered.

  • [Deactivated] on 01/08/2019 - 09:34
    +6

    The difference between tax avoidance and tax evasion?
    About seven years.

  • skillet on 01/08/2019 - 09:58

    Use a tax return accountant.
    Don't lie.
    Don't get caught lying.
    Don't get blacklisted if you do then be prepared to be audit regularly.

    If you get audited and your honest that's great you won't be audited again. I was audited once a few years ago and they never harrass me afterwards. Not so for some of my tax avoiding friends.

  • funnysht on 01/08/2019 - 10:34

    What abt submitting your tax return early or late or in the middle. Does that make and difference?
    I thought later may be useful because they already have started auditing others

    • nicolemcmilllon on 01/08/2019 - 10:38

      I don't think it makes a difference. I think most of their flagging comes from data matching or set algorithms using current and historic data.

  • crashloaded on 01/08/2019 - 10:47
    +4

    Do you have to declare money stored in a mattress and if so, can I claim the mattress as a storage deduction?

    crashloaded on 01/08/2019 - 10:47 (Collapsed - Offtopic. Show)
    • bigballerbrand on 01/08/2019 - 10:53
      +2

      I don't get all the sarcastic remarks on here. Someone who is obviously very knowledgeable in a particular area, goes through all the trouble of typing out tips for this community and half the comments on here are sarcastic.

      Either say thank you, or move along.

      • crashloaded on 01/08/2019 - 11:03

        Sorry, thank you.

        If being audited is a going concern, you're probably in a position that needs an accountant anyway. If that is the case, I suggest you don't get advice from a bargain website.

        It's quite easy to do your own tax and not get audited if you're an average income earner.

  • dwon69 on 01/08/2019 - 11:49
    +1

    Thanks for the tips!

    Do you have anything to add relating to cryptocurrency?

    • nicolemcmilllon on 01/08/2019 - 11:52
      +3

      Try to keep as best a record as you can. Most of the time the ATO won't know whats going on because there are just so many buys and sells.

      If you think you have made money then your accountant will ask you for CSV files of your trades and try to figure out the gain.

      Sometimes (most of the time actually) there are thousands of transactions and we just estimate the end gain. Looking forward to more crypto guidance from the ATO in the years to come.

      • drose1 on 02/08/2019 - 21:24

        what about losses and claiming capital gain losses? What sort of proof do you need?

  • SpendLess on 01/08/2019 - 11:53

    from reading some of these comments i must be doing my deductions wrong lol i struggle to hit $300 and im on $90k a year in a analyst role

    • nicolemcmilllon on 01/08/2019 - 12:00
      +5

      If you are an employee, and don't have a rental property or other investments, it is very rare that you will have many deductions.
      Generally, employers provide everything that is needed for you to undertake your work duties.

      If you work from home however, you may be entitled to working from home deductions.
      IF you use your phone for work purposes and aren't reimbursed.
      Sometimes you may buy a bag to carry your work documents home and back to work.

      But yes, generally most people wouldn't have that many deductions.

      • MITM on 03/08/2019 - 20:31

        Don't forget to claim the alarm clock. I use mine solely to wake me up for work each day.

    • djprima on 01/08/2019 - 13:40

      I make sure I'm buying those MX masters every year, and cheap external HDDs. Micro SDs counts too

      • SpendLess on 01/08/2019 - 14:10
        +4

        ill have to stand around officeworks and pickup dropped receipts

        • spaceflight on 01/08/2019 - 18:15
          +3

          The ATO can ask you to prove you paid for things. Receipts are not enough for this

          • GoldenDragon888 on 01/08/2019 - 18:27

            @spaceflight: So I need to stop using the missus’ credit card then?

            The next thing they will need to see is who paid the credit card.

    • bmerigan on 01/08/2019 - 23:31
      +1

      Same as me every year in recent memory, pretty normal i think.

    • TheCutter on 02/08/2019 - 19:44

      you need to get your head in the trough

  • iversonjack on 01/08/2019 - 12:51

    What are your thoughts on reduction in salary but receiving dividends from a family-trust-owned company shares, dividends which will be shared by multiple low-income-bracket beneficiaries? If all was 100% salary one tax year but the next tax year doing the above, would that be a trigger?

    • nicolemcmilllon on 01/08/2019 - 14:15

      Most likely not. Salary is easy to trace. It gets reported. Distributions from trusts also get reported in the trust tax return. Being higher or lower one year shouldn't matter. That's the whole point of the trust, to distribute to many low income beneficiaries.

  • djprima on 01/08/2019 - 13:41

    Hey OP, would you know if an audit can come after your tax return has been finalised? I don't want to celebrate too early

    • Gelato on 01/08/2019 - 13:44
      +1

      I’ve friends who got audited for the return she did few years ago

    • Xenocaust on 01/08/2019 - 13:55

      A few years back, my wife's tax return was finalised, a refund greater than expected was paid, and then 6 months later the ATO told her it was wrong and had to be repaid.

      My wife had done nothing wrong at all, we have minimal items that can be claimed, it was the ATO's mistake.

    • nicolemcmilllon on 01/08/2019 - 14:13

      Yes, when lodging your return it isn't really checked at all.

      You can be audited for up to 5 years after lodgement.

      If you do the right thing, you can always celebrate.

      • djprima on 01/08/2019 - 14:25

        I'm being super careful this year, making sure the claimed amount matches with the amount deducted from my bank account. Ozbargain makes it more difficult to trace purchases using discounted gift cards and cashbacks…

      • GoldenDragon888 on 01/08/2019 - 15:41
        +1

        What is the 2 years for amendment period for simple tax returns and the 4 years if you have are beneficiary of a trust then refer to them?

        Though I thought for tax evasion fraud there is no time limit

      • CheapskateQueen on 01/08/2019 - 23:36
        +2

        period of review for most individuals is 2 years, not 5 (where'd you get 5 from????)

        it may be 4 years if you have a business (that's not a small business), receive trust distributions and other vet l specified scenarios.

        if the ato determine you've committed fraud or evasion (very serious cases), there is no time limit.

        • bluesky on 02/08/2019 - 05:21
          +4

          Looks like:
          - the 5 years is how long one needs to keep tax records in case ATO wishes to back-audit
          - the 2 years (indiv/small biz) and 4 years (others) are time limits, if one wishes to amend one's tax assessment

          • H E B on 02/08/2019 - 10:38
            +3

            @bluesky: Yeah looks like there are some gaps in this advice thread.

            As usual - take all ozb advice with a grain of salt. Not knowing too much about all this but I'm pretty sure the ATO have quick a lot of powers. Would seem weird for them to have a 'statute of limitations' for 4 years for something quite significantly fraudulent.

      • CalmLemons on 03/08/2019 - 13:36

        Is it 5 years or 7 years now?

  • dlakers3peat on 01/08/2019 - 15:55
    +4

    I have been through a full audit for 6 years worth of returns. It was hell on earth.

    • nicolemcmilllon on 01/08/2019 - 16:05

      Were they enquiring about a particular matter? What did they find?

      Hell on earth is the Lakers not making the playoffs for the past 6 years!

  • H E B on 01/08/2019 - 16:09
    +2

    And here is another tip :

    Think twice before you claim for your lego sets, beer, 'raising twins' or weddings despite the possibility that one may naturally lead to the progression of the other.

    • nicolemcmilllon on 01/08/2019 - 16:13
      +1

      I read that yesterday, the wedding one really made me laugh.

  • HeWhoKnows on 01/08/2019 - 17:35
    -1

    All this pretty obvious

    Other things that would raise a red flag:

    -Significant changes in your tax return such as a sigificant increase in claimed expenses or significant increase or reduction in income declared

    -Claiming expenses on property which is earning little or no income eg Holiday home

    -claiming interest expense on an investment property which had no prior interest expense since purpose of loan must be for investment purposes at time of purchase.

  • khomeini on 01/08/2019 - 18:34

    Thank you nicolemcmilllon - very helpful. I'm assuming you have a background in accounting or taxes to provide this sort of information.

    Would you have any stats for the amount of times the ATO has been wrong about their assessments?

    I ask as this year my assessment looked wrong and when I called the ATO they further clarified that it was per quarter (eg. $15k payments per quarter). And no I didn't do any dodgy claims and pay hasn't changed much.

    I guess another (first world) question, do people get back any money from the ATO or mostly pay?

  • Oneiricer on 01/08/2019 - 21:18
    -1

    Hi Nicole,
    Quick question for you. I have about $6000 last year in self education expenses. My employer will be reimbursing me for 50%, but in this financial year (FY2020). Can i claim the full $6000 in self education expenses? It is for a masters course and it is 100% relevant for my role.

    I should note that reimbursement is only provided by the employer provided i pass my unit so it is not guaranteed that i will get the reimbursement.

    thanks
    Oneiricer

    • nicolemcmilllon on 01/08/2019 - 22:24
      +2

      Just claim 50% of it. If for whatever reason you are not reimbursed by your employer then go back and amend the return to claim full amount.

      • Gina Rinehart on 03/08/2019 - 11:41

        On a similar note, I claimed fees which were incurred last financial year, but was only reimbursed in July this FY. Should I have lowered my claim by the reimbursed amount, even though that wasn't done until this financial year?

        • GoldenDragon888 on 03/08/2019 - 11:59

          Expenses as far as I am aware have to be included in the financial year in which it occurs. You getting paid for that claim in a different year does change that.

          For example. My wife made a claim through her work for kms travelled. She received the claim (allowance) from her work in July but the driving occurred in June. So the kms get added to 2018-19 tax return and the claim money) will show on next year’s payment summary.

    • Donaldhump on 02/08/2019 - 01:15

      Answered above , ignore

  • random101 on 01/08/2019 - 22:19

    Is there a limit that they start to look into a return in more detail.

    I’ve done it all by the book but went from a low return to a very high return due to a rental investment.

    • nicolemcmilllon on 01/08/2019 - 22:26

      They have benchmarks. But they depend on the industry you're in, the amount of income you have, the type of income you have. So many factors go into whether or not you are flagged for a review or audit

  • [Deactivated] on 01/08/2019 - 23:39
    +1

    The ATO seems to have forgotten The Phantom exists, and he's perfectly ok with that.

  • haemolysis on 02/08/2019 - 00:18
    +1

    If your deductions put you in the “likely to be audited” group, but you don’t actually get selected for audit… they will actually warn you. Check your myGov inbox after your get your notice of assessments. I got one saying something along the lines of “be careful to check your tax return as people in your profession usually deduct X amount and you deducted significantly more.” They didn’t do anything. But I’m sure I will get targeted sooner or later for as long as I keep deducting a uni course.

    • nicolemcmilllon on 02/08/2019 - 10:19
      +4

      Those warnings are basically a cheap way for them to get you to stop overclaiming the next year. Its a scare tactic that doesn't require them to invest a lot of money into. Most people see the warning and claim less the following years.

      If your deductions are legitimate however and you continue to claim, expect an audit (which is fine if everything is correct)

      • haemolysis on 02/08/2019 - 10:24
        -1

        Whilst that is probably true, there is no doubt that the same program that picks the “warnings” is the one that chooses the “audits.” If you’re getting a warning, you’re surely on the list.

        • nicolemcmilllon on 02/08/2019 - 10:26
          +3

          Yes of course. I just meant that the audit is costly for the ATO and they have to use their already streched resources. The little note on the myGov is a cost effecitve warning which leads to most people not claiming excessive deductions in the future.

    • Akya on 03/08/2019 - 00:35

      My warning for last year came in mygov but I also received it as a physical letter! I did my taxes last year as I was 7 months into a new career and it was straight forward but the letter scared me into getting a tax accountant this year.

  • leeroys_dad on 02/08/2019 - 03:22

    Love the thread, thanks Nicole. Can you help me understand if and if the following are claimable scenarios?

    Driving expenses eg km method, to and from the airport for a business trip?

    Normal job location is 2 days working from home office and 3 days in the city office per week. If the job requires me to travel to the city office on some of the home office days, is this only claimable if I start work at the home office first or, because it's not the usual office location the travel is claimable?

    What are generally the home office deductions? Electricity, depreciation it write off of office equipment?

    If I had to move overseas eg Fiji for work for 6 months, is my airfare and hotel cost and all food deductible? Or just some?

    Thanks!

  • mousie on 02/08/2019 - 07:39

    Wonderful thread OP.

    Hypothetically if someone runs a business from home that doesn't generate much of an income at the moment, and also works in a part-time capacity can they play the mileage between their home office to their other employment. Also do they sense check your income last financial year versus this financial year as

    I'm in a fortunate situation where I've had a significant by over 70% growth to my income paid all my dues, bit did have a terrible few years.

    • GoldenDragon888 on 02/08/2019 - 08:26

      From the ATO’s website on travel expenses it appears to be a no.. But maybe there is a difference with it being a business.

      You can claim the cost of travelling:

      • directly between two separate workplaces – for example, when you have a second job (if one of these places isn't your home)

  • Sharp on 02/08/2019 - 08:21

    While I've got the experts around:

    1) Should I put in my taxable income I received from my employer or my taxable income after the deductions in my wife's tax return?
    2) in the private medical insurance section, does it matter who claims whose share? At the end, is the claimed total always the same?

    • GoldenDragon888 on 02/08/2019 - 08:36

      For 1) but taxable income is income after deductions.

    • nicolemcmilllon on 02/08/2019 - 10:16

      In your wife's return you need to include your adjusted taxable income. Which means your income from employer less your deductions and add back stuff like reportable superannuation contributions, deductible superannuation contributions, net investment losses, fringe benefits etc. If you don't have any of that, it is just your income less deductions.

      Private health, its better if each claims their own share of rebate. However if you do claim her share, be sure that she ticks the box saying her share has been claimed by someone else in her return.

      • GoldenDragon888 on 02/08/2019 - 10:41

        But all those items, reportable super contributions etc get reported on seperate lines under the spouse section. So while they are added back to form the adjusted taxable income the taxpayer doesn’t have to do it manually they just have to input them under the spouse section and myTax does the calculation. The input line for taxable income is just that the taxable income.
        Or am I wrong?
        https://www.ato.gov.au/Individuals/myTax/2019/In-detail/Spou…

        • nicolemcmilllon on 02/08/2019 - 10:43
          +2

          I wouldn't know, I don't use myTax. I would assume it does it automatically.

          Just wanted the poster to understand what was included in the spouse's income calculation.

      • Sharp on 02/08/2019 - 11:15

        very helpful, thank you

  • funnysht on 02/08/2019 - 08:42

    What about amending tax incomes

    Like i went interstate for a few days work
    Made $1000 but the silly employer/accountant claimed that rent could be deducted pre tax(away from home allowance) even though work paid for it.

    Now it was abt $200. Should i just ignore it or should i just ask my tax agent to increase the income by 200.
    If i start increasing my tax income will it arise suspicion?

    • GoldenDragon888 on 02/08/2019 - 09:00
      +1

      It depends on if it was a reimbursement or an allowance. A reimbursement wont appear on your end of year statement but an allowance will (as a seperate line).

      A reimbursement can’t be claimed but an expense where you received an allowance for can, as the allowance is reported as part of your income.

      For example my spouse received car allowance when she used her own car. This allowance was included on her payment summary. She then claimed as a deduction the kms she travelled. Effectively negating the allowance.
      During the year she needed to pay for a training course out her pocket. Her work reimbursed her for this expense later. This reimbursement was not included on her payment summary as such she couldn’t make a claim for it.

      So check your payment summary for allowances.

  • herecomestheoost on 02/08/2019 - 15:05

    After your opinion on this one Nicole.. So I didn't lodge a tax return for the first 8 years of being employed.. (for no other reason than me being a dumb young idiot) - I actually still am.

    However..

    Then in 2012 I just randomly started lodging and have ever since.. Do you think they'll catch up with me eventually for the missing 2003 - 2011 returns?

    • nicolemcmilllon on 02/08/2019 - 15:07

      They're most likely still outstanding. If you have a tax agent they would be able to tell you if the ATO knows they are outstanding. We can see on our system.

      Also, and more importantly, you might be due a refund, even after accounting fees etc.

      • herecomestheoost on 02/08/2019 - 16:50

        Thank you for the reply.. Yes I am aware that they can see them as when I log into mygov they do come up as 'overdue' Nothing has ever come of it though.. I'll have to get it sorted just in case

        • Antikythera on 03/08/2019 - 02:45

          i did a similar thing. I was a PAYG tax payer every year.
          lodged 91 to 95
          failed to lodge 96 to 01
          lodged 02 and all previous returns in 02.

          I had kept all my group certificates and paperwork filed away. I had to ask the tax office for correct paper forms for the years I had missed. It might me more difficult now with electronic lodgement software. Can you even get 2013 MyTax software now?

          I made sure that the 96 return I was due a refund, which meant I was not penalised for failing to pay tax. So the ATO had me in credit. Then the years following did very simple returns. Almost no deductions. Each year I was due a small refund which meant I was never fined for failure to pay.

  • lethalmoney on 02/08/2019 - 15:30

    i got a notice that i would be 'blacklisted' or similar after an innocent error, if the error was ever repeated.

    i had a Westpac savings account i thought was empty, apparently had some cents in it. I hadn't claimed $1 of earned interest.

    edit - this was probably 8 or so years ago.

    • benllben on 02/08/2019 - 18:21

      I am going to assume this account had more money inside of it earlier in the financial year. Even if the account had $1, the interest would have earned at most 4 cents.

      Either way, seem's completely unfair for a $1 mistake, but i assume the notice/warning was automated as per earlier comments and mainly as a scare tactic.

      • lethalmoney on 05/08/2019 - 20:27

        yeah possibly, it worked. :)

  • techboy on 02/08/2019 - 18:31
    +2

    Good to see you back Nicole

    • nicolemcmilllon on 04/08/2019 - 09:32

      cheers mate

      • techboy on 04/08/2019 - 15:34
        +1

        Spending most of my free time on the ATO Community Forum helping others out.

        • GoldenDragon888 on 04/08/2019 - 16:01

          macfanboy?

          • macfanboy on 04/08/2019 - 18:16

            @GoldenDragon888: Clever…

            • GoldenDragon888 on 05/08/2019 - 12:39

              @macfanboy: I have not received my tax return. One friend who did theirs at the exact same time has received their return. Why the wait?

              Later….

              I have received my tax return but haven’t received the $1080. I am definitely entitled to it.

              Or

              Why is my tax return zero? Where is my $1080? I am currently on a payment plan with Centrelink so why did they take my money?

  • funnysht on 05/08/2019 - 22:48

    are you less likely to be audited if you do your tax via an accountant than doing it by yourself (assuming you make no mistakes with each option)

    E.g
    I have an investment property say if
    1) I do return myself (assume not mistakes are made)
    2) Pay an accountant to do it (again assume not mistakes are made)
    Does option 2 less likely you'll be audited ? (Does the gov/auditors know that you did your tax by yourself or an accountant?

    • nicolemcmilllon on 06/08/2019 - 08:40

      They know that it was lodged by an agent.

      Logically speaking, an agent has guidelines to follow and professional standards that they must adhere to. Therefore it is less likely that fraud is committed when lodging with an agent.

      My personal opinion is that lodging a return yourself would make an audit more likely than going through an agent simply because people lodging it themselves are more likely to make common mistakes.

      • funnysht on 06/08/2019 - 20:08

        thanks, i guess im saying is say if i don't make any mistakes, is you risk of getting audited higher because you did your tax return yourself?

  • macfanboy on 06/08/2019 - 08:29

    (1) Assuming you have a full understanding and can back it up with receipts and proof you should be ok.

    (2) Dodgy is dodgy whether done yourself or through an accountant, certain things will trigger an audit not who prepared it.

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