The three tax mistakes that will get the attention of the ATO

2 min read

Do you do this? 

Well, guys. That time of year has rolled round once again…

The end of the financial year is fast approaching which means a couple of things: sales and tax time! 

If the idea of filing a tax return makes you break out into a cold sweat for fear of messing it all up, don’t panic. 

We chatted with Mark Chapman, the Director of Tax Communications at H&R Block, about the mistakes that most commonly lead to unwanted attention from the ATO, and he revealed that there are three things that spell disaster when it comes to this yearly event.

So, listen carefully, because this is what you need to AVOID doing this year, folks. 

First on the list is “failing to declare income”:

“Not including all of your taxable income on your tax return is a sure fire way to get into trouble with the ATO. Even if you are relying on information pre-filled by the ATO themselves, ultimately the responsibility for ensuring that you’ve included everything rests with you so it pays to take the time to ensure you’ve got it right,” he said. 

The most common errors in this area include:

  • Not disclosing capital gains on asset disposals such as shares and property.
  • Undeclared foreign income. If you have income producing assets (such as a business or a rental property) outside Australia, you receive investment income from overseas shares or bank accounts, or you have overseas employment income, you must declare all of that in your tax return.
  • Understating or omitting bank interest. Many people receive quite small sums of bank interest, sometimes so small that it’s easy to overlook. Banks report all the interest they pay to the ATO so any discrepancy is easy to pick up.
  • Not declaring business takings. If you run a small business and don’t declare all your sales, expect the ATO to take an interest. The ATO is looking particularly closely at cash-only businesses. Their perception is that in this day and age, the only reason for a business to be run on a cash-only basis is to avoid tax. 

Next is “claiming deductions you’re not entitled to”:

“The ATO has a collective bee in its bonnet about excessive work-related deductions at the moment and is focussing closely on employees who claim more than they are entitled to,” Chapman shared. 

When it comes to staying in the clear here, he suggests you “Only claim for items you actually spent the money on. Don’t claim for private or domestic costs, like the daily commute to and from work and keep records to support all your deductions.” 

Lastly, we have “income out of line with lifestyle”:

Chapman told NOVA that, “If you’re riding around in the latest Rolls Royce and enjoying harbourside living in one of the ritzier Sydney suburbs, but only declaring income of $10,000 on your tax return, the ATO will be looking very closely indeed at you.

“The ATO is able to assess the assets you own – cars, properties, boats, etc – and calculate the approximate amount of income you would need to support your lifestyle. If the amount of income you’re actually declaring is significantly less, you’ll trigger alarm bells at the ATO.

“As well as traditional sources of third part data like records of property purchases and sales, the ATO even scrutinises social media, so those Instagram pictures of you enjoying the high life in the Caribbean might not sit too comfortably if your declared income is less than the tax-free threshold!”

If you’re unsure about whether or not you’re approaching tax time correctly, the best way to double-check is to ask a professional (we know, it sounds obvious). After all, a tax audit can be stressful and hella expensive, so you best be avoiding those at all, er, costs.

Image: Getty


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Written By Stephanie Nuzzo