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 @ato.gov.au 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
- 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