ATO Red Flags To Avoid
Nobody wants to attract unwanted scrutiny from the ATO! Tax audits can be a very stressful and costly time. And now that the ATO’s data matching capabilities are making it easier to pick up discrepancies, they are also more common and targeted. The best way to avoid an audit is to know how to stay out of trouble in the first place!
So, as tax time 2021 kicks off next week, we’re outlining below the most common ATO red flags to avoid when submitting your tax.
HIGH CLAIMS
The ATO has stated that claims will be compared across industries. If your claim is unusually high, the tax office may take a closer look into your tax deductions.
NO PRIOR YEAR ADJUSTMENT
The ATO expects that even though occupations may stay the same, your tax deductions will likely still vary year to year. If your claims have not been adjusted from previous years, this may raise a red flag.
WORK-RELATED EXPENSE ADJUSTMENTS & AUDITS WHEN:
No link between the expense and the taxpayer earning their income
No evidence (receipts, logbook or diary)
Incorrect apportionment (private use vs work-related use)
MISSING SCHEDULES OR DOCUMENTS
When submitting your tax return, you need to check multiple times that you have submitted all the schedules and documents that are required of you. One of the most common reasons that audits are triggered is because there is paperwork missing.
THE NUMBERS DON’T MATCH UP
Note that ATO’s data matching system is incredibly high tech nowadays. They receive data from many sources:
Rental/Leasing companies – Cars/ rental properties etc
Payment providers – Stripe/Paypal etc
Crypto wallet providers – Coinspot etc
Banks & other financial institutions
Motor Vehicle Registries
Share Transactions
Sharing economy – Uber/Airbnb etc
They then use this information in two ways.
1. To check that you’ve given the same information to the ATO and that you are reporting all income and capital gains made.
2. That if you’ve purchased assets, your income can afford it. IE buying a Ferrari but your income is only $20,000.
If not, there may be an audit or questions coming your way.
CLAIMING INCORRECT DEDUCTIONS
Claiming too many deductions is one of the biggest mistakes that people make when filling in their tax returns. While there is a range of legitimate deductions that you can claim in your personal or business tax return, you need to make sure that you are doing this correctly. If you are trying to claim something that is not expressly allowed, it is a big red flag to the ATO.
Need any assistance with your current or previous tax returns? You can book a free consultation with us.