Tax time is upon us, which means 2 million Aussies will receive a dreaded call from the Australian Taxation Office (ATO) that will undoubtedly make their blood pressure spike.
However, assistant commissioner Karen Foat assured that most Australians had little to fear if they were called as part of an ATO audit – provided they had been truthful on their 2022 tax return.
“Each year, the ATO contacts around 2 million people about their returns. In most cases, audits are not our first action,” Foat said.
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She explained that audits were triggered if the ATO found a discrepancy in your tax return, which required further review to ensure the information you had provided was accurate.
“Third-party data indicating underreported income, and deductions that appear high compared to people with a similar job and income level, tend to raise concerns," Foat said.
Being audited does not mean the ATO considers you have been “untruthful” or deemed guilty. The tax office accepts that mistakes can be made on your tax return.
“We presume you are trying to meet your obligations unless your actions give us reason to believe otherwise. We provide help through our advice, publications and visits,” the ATO website said.
What is involved in an ATO audit?
If the ATO finds discrepancies on someone’s tax return, they will contact the taxpayer directly or their tax agent to ask questions, such as an explanation or documentation for a deduction.
“For example, if you’ve claimed deductions for clothing but you work in a job where a compulsory uniform is unlikely – we may just want to know a little more about why you’ve claimed that deduction,” Foat said.
Other times, the ATO may want more details in the form of receipts or evidence of transactions.
“We will always let you know what issues have attracted our attention and what information we will need from you,” Foat said.
“Our biggest tip is to ensure you work with us from the beginning and provide the information required to help us resolve any concerns and finalise the audit.”
What is expected of taxpayers?
According to the ATO, taxpayers who are audited should be truthful, honest and respectful in their dealings with them, communicate openly and provide complete, accurate and timely responses to requests for information.
In some instances, the ATO may visit you in-person, which means you should allow them to make copies of your records and provide them with reasonable facilities while they conduct their work.
Similarly, Foat encouraged all taxpayers to keep thorough, organised records throughout the year to avoid the frustration of sorting through old receipts come tax time.
“The better your record keeping is throughout the year, the easier the audit process is likely to be when we request to see your records,” she said.
What if you make a mistake on your tax return
While the ATO recognised that mistakes could happen, Foat advised that Aussies who realised they’d made an error should tell the ATO as soon as possible.
“If we haven’t been in touch with you yet, you can amend your return yourself on myTax or, if you use an agent, ask them to lodge an amendment for you,” she said.
However, if the ATO has been in contact to review your claims and you know you’ve over-claimed, it’s important to “be honest” and resolve the matter quickly.
“Taxpayers are more likely to face penalties if they aren’t honest with us once we come knocking,” Foat said.
Fines for misleading statements on your tax return range from $4,440 up to $13,320 for taxpayers who have shown “intentional disregard” by intentionally underpaying tax or over-claiming an entitlement.
How to avoid getting audited
While there is no way to guarantee your tax return won’t be subject to review by the ATO come tax time, H&R Block Accountants have provided several tips to help you avoid being audited:
Always lodge your tax returns on time. Staying on top of your tax returns and allowing plenty of time to lodge means you are less likely to make mistakes and undergo scrutiny for late submission.
Review your calculations and check your deductions several times to ensure they are accurate before lodging your tax return.
Claim your deductions – but only the ones you are entitled to. So, if you work in an office, this means you probably can’t claim uniform expenses and the same goes for claiming travel expenses on your commute.