Audit Hit List

What you need to know to avoid unwanted attention.

If you bought or sold an investment property in the past year, pocketed some of those resource stock profits or continued to make losses on your rental property then there is every chance you will receive a letter from the Australian Taxation Office. Between now and October the Tax Office will be writing to people it thinks might need ‘help’ complying with the law when preparing their tax returns.

Accountants expect the Tax Office checklist to again include unusually high work-related expenses, undeclared capital gains on investments such as property and shares, and burgeoning claims for rental property losses.

In addition, the Tax Office will focus on specific industry sectors and occupations including accountants, hospitality workers, factory hands, mechanics, IT professionals and miners. Industries to be scrutinised included fishing, used-car sales, restaurants, cafes, horse racing, hotels, building and construction.

Tax Office statistics show that clothing was the most common work-related expense but motor vehicle expenses were the most valuable totalling $4.7 billion, or an average of $2013. Overall, the average claim for work-related expenses was $1661.

The Tax Office says it looks out for deductions that seem high or excessive compared with your income and claims that are ‘outside the regular pattern’ for a particular job or industry. Work-related expenses must have a ‘direct connection’ to the income you earn and good record-keeping is important. You need to be able to produce a receipt if required, or a diary or logbook that substantiates your claim.

Boom times in property in past years and the bullish sharemarket mean the Tax Office will make sure capital gains are on the radar. Last year the Tax Office wrote to 23,000 people who made investments in property, shares and managed funds to generally alert them to their obligations when they sell.

The Tax Office will also be on the look-out for ‘unusual patterns of rental claims’, as landlords continue to report growing losses on their properties. They warn that a property must be genuinely available for rental to claim expenses.

IMPORTANT DISCLAIMER: This article is published as a guide to clients and for their private information. This article does not constitute advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.