ATO tax return

Staying in the ATO’s good books with your tax return

07 Nov, 2016

The ATO’s hit list is released each year and targets certain occupations or categories of claim which, based on analysis of previous claims, the ATO will be paying closer attention to this financial year.

It seems to work pretty well for them, too. In the past, targeting particular industries has boosted tax collection by around 22%.


How does the ATO create its hit list?

The ATO will take a close look at a selection of claims for deductions including vehicle expenses, self-education and travel. They also crunch the numbers on the previous year’s tax returns and may turn up the heat on particular occupations where:

  •  average amounts of claims are high
  •  there is an increase in the number of people making claims
  •  there are a lot of people making claims for the first time.

Taking an attitude of ‘prevention is much better than cure’, the ATO begins by writing to people in the occupations they have selected for closer scrutiny. They include information which highlights mistakes people commonly make in their claims, as well as tips on how to avoid these mistakes in future years.

Beware of scam emails that seem to be from an email address with the sender name ‘Australian Tax Office’. These are not genuine and should be ignored and deleted – never open an attachment or reply with personal information. The ATO will only contact you via phone or post.


What should I do if my occupation is included on the ATO hit list?

Firstly, if you’ve been doing everything by the book you have nothing to worry about. If you haven’t been entirely honest in previous tax returns then now is the time to put things right.

There is no need to reduce the amount you claim for out of fear you’ll be audited. If you’re entitled to a tax deduction then you should go ahead and list it. Just don’t exceed any boundaries set by the ATO, and make sure you have sufficient evidence to back up your claim.

If you’re worried about your situation then you should engage the services of a tax expert.

If the ATO does contact you regarding your tax return, the first step will usually be a letter requesting further information about a particular point. You’ll be given 28 days to respond to this, and you may have to send additional documents such as receipts and records you’ve kept.

If this doesn’t satisfy the ATO’s enquiries, the next step is a face-to-face meeting. You’ll have plenty of chances to explain yourself, but severe penalties can apply if you’re found to have broken the rules, so it’s best to have all your affairs in order.


What are the penalties for tax return errors?

The extent of your penalty will depend on how serious the error was and how helpful you are in correcting it. You may end up with just a minor adjustment to your tax return or a large fine plus interest.

Penalties may be as high as 75% of the tax shortfall if you intentionally disregarded a tax law; 50% for recklessness; and 25% if you don’t take reasonable care, if your case is not reasonably argued or if you disregard a private ruling by the ATO.

An extra 20% is added to these penalties if you are uncooperative with the ATO or make life difficult for them in their investigations, so the highest rate of 75% becomes 90% (75% x 1.2).

The Commissioner encourages voluntary disclosure so if you come clean about any mistakes during an audit investigation they will take 20% off the base penalty amount. If you notify them of any errors before an audit begins, they will decrease the base penalty amount by 80%.


Tips for getting your tax return right:

The ATO offers the following guidelines for ensuring your work-related expenses claim is correct:

  • You must have incurred the expense in the year you are claiming for
  • The expense must be work-related and not private
  • Receiving an allowance from your employer does not automatically entitle you to a deduction
  • If your claims total more than $300 for the financial year you need written evidence


To summarise:

  • The ATO each year creates a ‘hit list’ of occupations that it will be paying closer attention to in the current financial year when it comes to tax returns
  • Data from previous years is used to identify areas where people may be claiming incorrectly
  • If you’re selected for an audit, the ATO will first send a letter asking for extra information, and if the matter is not resolved that way you will need a face-to-face meeting
  • There are severe penalties for deliberate disregard of the law, but you can reduce your penalty by being cooperative with the ATO or even admitting errors before you’re audited


document your tax claim

How to document your tax claim properly

04 Nov, 2016

The ATO is constantly increasing the amount of auditing it does, so it’s crucial that you document your tax claim properly in case you’re one of their chosen ones. The ATO motto of ‘no receipt means no deduction’ will leave you in trouble if you’re audited and can’t provide sufficient evidence to support your claim.

With the Australian self-assessment tax system it’s your responsibility to work out the amount you can claim on your tax return. In order to do this accurately and legitimately, you need to keep careful records of your expenses and activity for the year.


What’s the best way to document your tax claim?

Whether you have everything stashed away in a shoebox or meticulously entered in an excel spreadsheet, as long as you can get hold of it when asked, it doesn’t really matter.

Of course, keeping your own electronic records which show your income and expenses will make your job easier and keep your accountant happier – perhaps even netting yourself a discount on their tax agent fees.


Do I need to keep all my receipts?

If the total amount you’re claiming for any tax year is under $300, you don’t need to keep receipts to back up your claim. If it adds up to more than $300 though, you need to keep written evidence in the form of receipts, bank statements and credit card statements. This evidence must cover the full amount of the claim, including the first $300.

As you document your tax claim you must keep written evidence that shows the:

  • amount of the expense
  • date you incurred the expense
  • nature of the goods or services — if this is not shown, you can write this on the document before you lodge your income tax return
  • supplier’s name

Do remember that if your employer has already reimbursed an expense, you can’t claim it from the ATO, even if you keep the receipt.


How long should I keep my records for?

Your written evidence should be kept for five years from:

  • the date the notice of assessment is sent to you
  • the date of your last claim for any decline in value for depreciating assets
  • disposal of an asset for CGT purposes
  • the date a dispute with the ATO is finalised.

If you fall into the ‘simple tax affairs’ category of taxpayer, you only need to retain your records for two years if:

  • your income consists only of salary or wages, interest or dividends within Australia
  • deductions are only for managing tax affairs, bank fees or donations

If you’re not sure whether to keep a particular record, or how long to store it for, it’s better to be safe than sorry and hold on to it until you’re sure it’s no longer required.

You may keep your supporting documents as hard copies or store them electronically, but if you scan them or make copies they must be a true and clear reproduction of the original.

If you choose to keep everything electronically, make sure all your data is backed up. The ATO won’t be too interested in your sob story about your dog eating your hard drive when it comes to auditing your tax affairs.


To sum up:

  • It’s your responsibility to work out what you can claim for on your tax return, and this must be backed up with written evidence
  • If the ATO audits you and you can’t provide evidence of your expenses, expect your claim to be rejected
  • Ideally you should document your tax claim electronically – including income and expenses records – so you can quickly and easily see where you stand
  • If your claim is over $300 you need to keep receipts, statements, etc. to substantiate the whole claim. You don’t need to keep these if it’s under $300
  • You need to keep your records for two or five years, depending on the type of claim. If you’re unsure, play it safe
  • If you create electronic copies of any documents, make sure they are clear and accurate. Always back up your electronic records in case something happens to the originals


tax deductions on car usage

Can I claim tax deductions on car usage for work?

02 Nov, 2016

You’re probably aware that taxpayers who use their car for work may be able to claim deductions for some of the costs. The tricky part is working out which, if any, tax deductions on car usage you’re eligible to claim for.

The ATO puts it like this. You can claim the cost of using your car to travel:

  • from your normal workplace to an alternative workplace — for example, a client’s premises — while still on duty, and back to your normal workplace or directly home
  • from your home to an alternative workplace for work purposes and then to your normal workplace or directly home.


Can I claim for travel between home and work?

Your regular journey from your home to your place of work is classed as a private expense and therefore no tax deductions on car usage apply. This is the case even if:

  • you do minor tasks — such as picking up the mail on the way to work
  • you have to travel between home and work more than once a day
  • you are ‘on call’ and your employer contacts you at home to come in to work
  • there is no public transport near where you work
  • you work outside normal business hours — for example, shift work or overtime
  • your home is a place of business and you travel directly to a place of employment.

But you can claim the cost of journeys between home and work where:

  •  you use your car because you have to carry bulky tools or equipment that you use for work and there is no secure place for you to leave them at work
  •  your home is a base of employment — you start your work at home and travel to a workplace to continue the work
  •  you are an itinerant worker with shifting places of employment.


What is classed as itinerant work?

These three characteristics are typical of itinerant work:

  • travel is a fundamental part of your work
  • you have a web of workplaces in your regular employment with no fixed place of work
  • you regularly work at more than one site each day before returning home.

Incorrect claims for travel between home and work are common, so make sure you understand the provisions for your own situation.


Examples of allowed tax deductions on car usage

Q: I work for a fashion store in the city but I sometimes have to attend a meeting at a store in the suburbs. I make this journey by car, and I usually go straight home from there as the meeting finishes late. Can I claim for any of these trips?

A: You can claim for the cost of the journey from the city store (your usual place of work) to the store in the suburbs, and from there to home. You can’t claim for the first trip of the day from your home to your usual place of work.

Q: I work as an electrician and I have to travel to a different site each day – sometimes several in one day. Is this travel eligible for a tax deduction?

A: Your employment would be classed by the ATO as itinerant since you have no fixed place of work, travel is an integral part of your work and you often travel between sites. Therefore any work-related travel, including trips to and from home, would be eligible.

Q: I’m a builder’s labourer and I am based at a single site for several months before moving on to the next project. Is my work classed as itinerant?

A: No; because you are based in one place for a significant period of time, and travel is not a fundamental part of your work, your employment is not considered itinerant by the ATO.

Q: I am a carpenter and recently purchased a brand new ute. I work full time and use my vehicle to carry my tools around with me all the time. What can I claim for?

Since your vehicle is used to transport bulky items you need for work, you can claim for all trips you undertake, including to and from home. Because it’s a commercial vehicle being used to carry work tools all the time, it would be considered 100% work use and there would be no requirement to maintain a logbook.

Note that any claims that are not fully documented with supporting evidence may be rejected. It’s not sufficient to provide a ‘rough estimate’ of your business usage. More information on how to claim can be found in this article.


A summary of tax deductions on car usage:

  • Most people can’t claim for travel to and from work unless they’re required to visit an alternative place of work, for example for a client meeting. In that case, travel to and from the alternative location can be claimed for
  • If you use your car to carry work equipment, if you work at home and in a different location, or if you do itinerant work, the journey from home to work can be claimed for
  • Itinerant work is work where travel is a fundamental part of your job, you have no fixed work location, and you regularly travel between sites during the day
  • Incorrect claims for tax deductions on car usage to and from work are common, so be clear on what you’re eligible to claim for
  • Claims must be fully supported with evidence of expenses, otherwise they may be rejected