Small businesses have been warned to look out for five mistakes that might lead to being audited by the Australian Taxation Office (ATO) as tax return season begins.
The number one reason Australians are audited is by overclaiming deductions, said Coco Hou, CPA and CEO of Platinum Accounting Australia.
If deductions are found to be higher than those of others in your profession or income range, the ATO’s system will flag it automatically, and providing receipts and real evidence to back the claims is essential.
Leaving out income from other sources is also a method that many Australians use to attract unwanted attention from the ATO.
“The ATO already has that data from third-party sources,” said Hou. “Many Australians don’t realise how much information the ATO already receives from crypto exchanges, banks, rental platforms and employers. If it’s missing from your return, it looks suspicious.”
Those who skip a year or file late tax lodgements consistently are also more likely to be audited, especially if there are fluctuations in income or sudden increases in deductions.
“Lodging late or making inconsistent claims from one year to the next raises alarm bells,” warned Hou.
“Even if you’re not doing anything wrong, the ATO wants to understand the sudden change.”
Failing to report foreign income or assets as an Australian tax resident is a large area of concern for the ATO.
Revenue organisations share data with each other to identify tax evasion on a global scale.
“With data-sharing agreements in over 100 countries, the ATO will find out,” said Hou.
“It might take a year or two, but when they do, the penalties can be severe, including being treated as deliberately evading tax.”
Using unregistered agents or ‘cash refund’ specialists who promise big returns often results in their being unable to evade the ATO’s level of scrutiny.
Although the taxpayer may initially receive a large refund through the use of such tax agents, they are often met with an audit notice from the ATO due to false claims made by the agent.
“If your agent gets it wrong, you’ll be the one who pays,” said Hou.
“The ATO doesn’t care who filed it; it holds you responsible.”
Hou recommended all taxpayers seek advice from registered, qualified professionals to avoid making wrongful or incorrect claims and mitigate any risk of being audited.
