What To Do If You Get Audited By The ATO

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Earlier this week, the ATO issued a warning, telling people to keep appropriate receipts and other documentation, particularly for what they call "other work-related expenses". And that warning is accompanied by ATO staff being directed to undertake random audits to make sure people are following the rules when it comes to work-related expenses. So, what can you do to ensure you aren't hit with any fines of extra payments to the ATO?

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The Australian Tax Office (ATO) has confirmed it is conducting random audits of taxpayers in a bid to ferret out spurious work expenses. The random audits began 18 months ago and are ongoing. Here's what you need to know.

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Consequently, Australians are now officially "on notice" to have their receipts ready for inspection."]

What are legitimate work related expenses?

In order for a deduction to be a legit work-related expense it needs to satisfy three criteria.

  1. You must have paid for it and not been reimbursed
  2. It must be directly related to earning your income and not a private expense
  3. You must have a record to prove it

If you've been claiming things that don't satisfy those criteria then it's time to clean up your act.

You've still got time

The good news is the ATO has issued the advice now. So, if you've been squirrelling away deductions that you're planning to add to your tax return for 2017-2018, you can remove those from whatever system you use for managing deductions.

If you're in doubt about what's a legitimate claim and what might be considered "creative accounting", the ATO has a list of what's OK and what's not. For example, if you've been claiming car expenses for the trip between home and the office, there are some situations in which that's OK and others where it's not.

The ATO's advice is written in clear English so you shouldn't have any trouble understanding the difference between valid and dicey deductions.

Record keeping is key

If you are audited by the ATO, it's really important to have good records of what you've claimed as a deduction, why it's justified and appropriate documentation like receipts.

The ATO requires you keep all receipts for five years after you lodge your return. In the old days, that meant a shoebox filled with little slips of paper that were a pain to sort through. However, the ATO is OK with you storing copies of documents electronically.

I do that using a Fujitsu ScanSnap scanner and Evernote. Every receipt is scanned and Evernote makes them searchable. So, if I need to find a receipt for an audit or a warranty claim, I can search for it easily, rather than rustling through a box of tiny, and often faded, slips of paper.

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As long as you've been following the first couple of rules about the expenses being within the rules and directly related to work, then having easy access to documentation will make the audit process much smoother.

How does an audit work

If the ATO decides to conduct an audit, they'll call and make a time to see you, providing an agenda for what they'll be discussing and what they'll need from you. However, while they do define the scope of the audit at the start, if they spot anything untoward, they receiver the right to expand the breadth of their investigation.

The entire process is documented and the ATO provides everything they do in writing. That's important as you won't get official correspondence regarding an audit over email.

Alternately, the ATO has rights to conduct audits electronically through the imaginatively named e-Audit process. This is where the ATO uses their rights to examine electronic records they hold in their systems and look for items that raise their attention.

When to comes to communications from the ATO, they say:

The ATO uses a variety of methods to engage with taxpayers or their agents, and in some circumstances we will contact a taxpayer by letter, phone, email, or SMS.

If you receive a call, letter, email, or SMS that you weren’t expecting, you can check whether it is genuine through your tax agent, or by calling the ATO scams hotline on 1800 008 540.

But the main thing is...

Be honest in your dealings with the ATO. It might be tempting to try and put one over the auditors but if you're caught out the penalties can be significant.

And, for most individuals, we're probably talking about saving just a few bucks. Even if you add $1000 of phoney or dubious deductions to your tax return, unless you're on the highest tax bracket you're only likely to save a couple of hundred bucks.

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    I was audited by the ATO a couple of years ago. I received a phone call out of the blue, with the caller saying he was from the ATO, and asking me to provide ID over the phone so that he could confirm my identity. I told him that I wouldn't be providing that kind of information over the phone to a random caller. He then provided me his name, and suggested that I call the WA ATO switchboard and ask for him.

    With all of the scam calls around, related to identify theft, I was surprised that the ATO is making these kind of calls, thus lowering the guard of anyone who may subsequently receive scam calls.

      Yep - agree. I make it a habit to never give details over the phone to any caller I cannot verify.

      My audit was just an email on the my gov website saying the audit for my 2015-16 period had been completed, I owed $0 and the ATO considered the matter closed. That's the first and last I heard of it.

    Be vicious: make the individual tax-eaters who audit you hate every day that they are on the job; tell them you think that they are vermin; tell them you hope their children get cancer.

    The Little Eichmanns who enable the top-end parasties to live at our expense, are psychologically weak people: fingers crossed if they all know that they face a polity that hates them, they will seek gainful private sector employment (at significantly lower levels of remuneration than that offered by the public teat).

    Do NOT think of these people as 'public servants': they're not. They're part of the system of enablers for the most vile people in society - politicians.

    I was audited last year by the ATO for work expenses, work related car expenses and work related travel expenses. Most of the contact with the ATO consisted of phone calls to myself and my employer. In the first phone call, I was told by the auditor that I was a) a liar b) a fraud and c) threatened five times with an adverse audit and penalties. The ATO rang my employer and my direct manager asking questions which also inferred I was a tax cheat. I called the auditors bluff and subsequently received an adverse assessment which disallowed all my claims and imposed over $30k in additional taxes, administrative penalties and shortfall interest charges, accusing me of being "Fraudulent". I lodged a formal complaint over the actions of the auditor who had told lies in the assessment letter (referring to phone calls which were never had and attributing statements to me which were never made). The complaint was upheld and the Auditor demoted. I then sought a review which made some concessions and reduced the penalties on the basis that I was "reckless" instead of "Fraudulent" to around $20k. I then lodged a formal objection to the assessment and after six months of further review was subsequently found to made all my claims legitimately and justifiably. My claims were allowed in full, all administrative penalties and shortfall penalty interest charges were reversed, and I received a nine page letter confirming that I had correctly claimed my deductions. Although my complaint against the auditor was upheld, there was no apology.

    My advice, if is you have correctly claimed your deductions, stand your ground and object. I have no doubt that the first reviewer thought if he threw me a bone and knocked a third off the assessment, I would just be so grateful that I would pay. One thing I did learn from all this, if the ATO want to talk to me on the phone again, I will be politely, but firmly telling them to put all questions in writing and I will respond in writing. They hate that but unless there is a written record of communications, you are relying on the auditor to accurately note the conversation, which was not my experience. If you do answer questions by phone, record the time and date and make comprehensive notes of the conversation. They are not your friends and not trying to help you.

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