The ATO expects to receive more funding this year to investigate individuals who claim excessive and incorrect deductions. The difference between how much the ATO collects and how much it would if all tax returns were compliant, is called the tax gap. Treasury will expect a return on their investment into closing this tax gap.
To avoid an audit, it is important to know what can or cannot be claimed, and to seek professional help if unsure. Deductions are only allowable if the expense has been paid for and not reimbursed, there is a strong nexus with current income earning activities and they are not a private expense. You must have written evidence of most expenditure, and reliable records to support any allowable estimates.
Taxpayers who have claimed car deductions through the “cents per kilometre method” will be of interest to the ATO. Apparently, too many taxpayers are claiming the maximum rate of 5,000km yet are in occupations that do not support high levels of business related travel. The ATO will be checking the basis of these claims in particular.
Other work-related deductions
These include home office, union & membership fees, broadband, mobile phone, tools & equipment. Most commonly taxpayers consider the standard claim of $300 to be an automatic deduction without having spent the money. Although you don’t need receipts for a total claim of up to $300, or $200 for regular low-cost items in addition to other work expenses, you must be able to show how the money was spent. The ATO also believes that many claims for standard laundry deductions of $150 are incorrect.
The ATO has sophisticated computer systems and analytics to benchmark and compare expenditure with others in similar income brackets and occupations. Those taxpayers that appear to have lodged excessive tax deduction claims may be automatically selected for closer review.
If you have high work expenses and they’re legitimate, you shouldn’t fear the ATO. At Discovery Accountants , we thoroughly review your deductions when we meet with you, to help ensure your claims will pass muster with the ATO.
Alex Frost is a Chartered Tax Adviser holding two degrees in tax law. She meets clients and has trained local accountants to help you get the best legally possible tax outcome and be protected from ATO scrutiny. We even put our phone number on your tax return so the ATO call us to explain it, not you!
Small businesses that have a lot of ‘cash’ only transactions will also come under review. In 2017, the ATO conducted 11,000 business audits, yielding nearly $200 million in tax and penalties. It’s proven to be a lucrative activity. As result, the ATO have announced there will be more visits by their ‘Black Economy Taskforce’ to locations that have cash only shops.
If you have high levels of cash in your business, you may wish to consider moving to online or cashless systems to collect payments. In recent years Australia has moved away from cash so any business that can help its customers with card readers or online payment facilities will be a welcomed move.
The 2018 Federal Budget also proposed further restrictions on businesses accepting large cash payments so getting the technology to assist with getting paid is a good business move.
At Discovery Accountants and Advisers, we have a great deal of expertise and experience with online accounting software. We’ve transitioned hundreds of small businesses to paperless and electronic systems. Contact us today to find out how we can help you better manage your business and minimise risk.