ATO – are you ready for an Audit

As a taxpayer, you mustn’t forget it is your obligation to ensure that your tax return is correct. You cannot just assume that by using the services of a Registered Tax Agent to prepare & lodge your tax ATO auditreturn, that your obligations are reduced. In recent rulings, the ATO has emphasised that taxpayers cannot use the defence of not understanding what the Tax Agent has done.

In the case of an ATO audit, it is highly likely that your Tax Agent and or other professionals will be required to assist in the audit process, which in turn brings in another cost to consider where you are selected for an ATO audit. The costs to assist in an ATO audit can be in the thousands, but you can insure yourself against these fees. This is called Tax Audit Insurance, and it covers the professional fees normally charged to you when your professional advisor(s) assist you to respond to eligible official enquiries, reviews  investigations or audits, of lodged returns. If you wish to find out more about Tax Audit Insurance, please contact or office.

The ATO has set up a new page on its website called “Building confidence”, which talks about its current compliance activities, and the amounts of tax and penalties it has collected in 2014 from its various initiatives.

ATO’s audit targets – some of the areas that the ATO has stated it will be focusing on are:

  1.  Work-related expenses:
    – motor vehicle expenses for travelling between home and work;
    – overnight travel; and
    – the work-related proportion of use for computers, phones and other electronic devices.
  2.  Rental property expenses:
    – excessive deductions being claimed for holiday homes (deductions should be limited to the amount of income earned, or to the number of days actually rented out at a commercial rate);
    – husbands and wives inappropriately splitting rental income and deductions for jointly owned properties; and
    – interest deductions being claimed for the private proportion of loans.
  3.  Cash economy:
    – the building and construction industry; and
    – the restaurant, café and takeaway industry.
  4.  Contractors – employers misusing contracting arrangements with the intention of avoiding employment overheads.