“If it sounds too good to be true, it usually is.” –Graham Whyte
Tax agents will promise to maximise your refund if you choose to lodge your tax return with them. What you may not realize is that some will encourage you to claim too big of a refund – more than the ATO would deem you entitled to if they were aware of your actual tax situation. This definitely does not mean that they’re all out to get you. Just be wary, and don’t be too shy to ask the questions that you feel you need answers to.
Beginning this tax season, the ATO is really cracking down on certain tax deductions being claimed. If your tax return is “red flagged” by the tax office, the best that could happen is that your processing time is delayed because an ATO representative will need to review it further. The worst that could happen, in circumstances where a taxpayer has deliberately claimed an incorrect amount, is that an investigation could begin and you could be liable for multiple penalties.
Three Golden Rules to remember when claiming tax deductions.
Whether it’s a manual, e-book, or by word of mouth, there are a set of rules for almost everything. This even includes something that seems as simple as reporting tax deductions. When doing so, be sure to take into account these three rules of thumb:
- Make sure the expenses you claim have actually been incurred.
- Ensure that your expenses are 100% work-related.
- Keep the receipts to prove the claims are for valid expenses.
Let’s discuss some of the dodgy ones…
- Doing more than what’s expected of you…
$3,700 was claimed by a railway worker as a car expense on his tax return. Instead of storing his ‘bulky equipment’ at work, he decided to take one for the team and drive it to and from work everyday in his personal truck. This claim wasn’t justified because he could have left the tools at his work site.
- Blurring the line between your job and personal lifestyle…
Over $9,000 was claimed by a wine expert on his tax return. He claimed thousands on expenses ranging from airfare to wine tours to cases of wine; justifying that these were all work-related. In this case, his employer cleared things up by stating that the employee was in no way under working orders to make these purchases.
- Being in two places at once…
A tax deduction was reported by a medical professional for a conference in the U.S. When the ATO red-flagged this expense, the taxpayer was found to still be in Australia at the time of the conference in question. Whether he honestly just missed his flight or fraudulently claimed this expense, he was facing some major penalty costs.
- Toll booths take more than just your money…
Car expenses were claimed as a tax deduction by one taxpayer through the logbook method. When keeping a log, it’s important to actually keep up with day-to-day activity. Under further suspicions, the ATO looked into the reports and clarified with the toll companies that the vehicle was not seen at any of the mandatory tolls on the reported routes.
- Your own quiet home away from home…
$57,000 was claimed by a taxpaying student for self-education expenses. The money went towards the lease for a residential property. The student claimed that he needed a peaceful environment to study without interruption. Needless to say. This did not exactly fly with the Australian tax office.
- Extra closet space…
$7,500 was claimed by a student for self-education expenses. This was for a storage unit that was ‘needed’ for the massive amount of books and other class materials, since their home did not provide a sufficient amount of additional space. The ATO was not OK with this one either… especially considering that it was the same student taxpayer from scenario #5.
So how is the ATO catching these taxpayers?
As stated by the tax office, they are incorporating sophisticated tools along with data analytics to identify any red flags. These new tools, along with random audits, put anyone at risk. If an account is red flagged, the ATO will double check the claims directly with the taxpayer’s employer or other sources of evidence. If the stories don’t match, then further action may be taken in the investigation.
To put it into perspective, let’s take a look at what happened last year. The ATO conducted about 450,000 audits and reviews of individual tax returns, which further led to revenue adjustments of over $1.1 billion in income tax.
What if I made a genuine mistake?
Mix-ups happen… especially when numbers are involved. If you added an extra zero somewhere or read a receipt wrong, just let your tax preparer or the ATO know and it can be fixed, penalty-free. The ATO is only trying to make sure that taxpayers are claiming their deductions correctly. If you notice that you did something wrong, speaking up about it is in your best interest.
Choose a reliable tax agent.
All in all, you want to be sure that you’re lodging your tax return correctly to the best of your knowledge. The ATO is not trying to scare the taxpayers who are doing the right thing. If you have any questions about the deductions you’re claiming on your tax return or where you can turn for a trusted tax agent, you can ring us at 1 300 ELODGE (356 343). We’ll provide you with the answers you need and a little bit of peace of mind too.Tags: Australian tax deductions