While there may be people and businesses out there telling you there are ways to avoid tax audits completely, we have some advice for you; you can’t. There may be ways to avoid them (here is a list of at least 60), but to say that you can avoid them entirely just isn’t true. In most cases, tax audits are targeted, however some of them are also random assignments. While it’s almost impossible to avoid a tax audit, there are some simple adjustments you can make to your tax returns that may help you to avoid the audit list.
Lodge Your Tax Return On Time
While a late tax return doesn’t automatically mean that you’re in trouble, a good compliance history with the ATO will help to improve the reputation of your business. This includes all items such as income tax returns, PAYG Summaries, BAS as well as ensuring you’re paying for any tax liabilities on time.
Pay Your Employees Superannuation
If you’re not paying your employees the right amount of superannuation, chances are they’re not going to like it. This means they’ll be more likely to complain to the ATO, which is only going to give the ATO the encouragement needed to review your business.
Showing Consistent Losses
There will be a time when losses are a normal part of a business structure, especially when hitting hard times or it’s a relatively new business. However, if you’re showing losses on your returns three out of the past five years, this may look suspicious. Showing consistent losses can be an indication of some issues which could result in an investigation to check if the losses are legitimate.
Major businesses who show up in the media with wealthy purchases or large asset sales is likely to be seen by the ATO. It’s important to remember that not all publicity is good publicity in this scenario. If you are selling large amounts of assets, be sure to be honest with information given to the ATO, just in case your publicity stunt triggers an audit.
Claiming Uniform Expenses
As an individual, you may have noticed there is a section to claim a deduction for uniform purchases and expenses. However, some people have been buying clothes for work and claiming them as “uniforms” where they shouldn’t be. A uniform is an item of clothing, or set of items, that are distinctive to the organisation you’re working for, contain the logo of the business and isn’t available to the general public. Be sure to understand whether or not what you wear at work is considered a uniform by ATO standards.
Use a Tax Agent
Some individuals, and even small business, think that tax simply isn’t that complicated and it’s perfectly fine to complete your own tax return. While some returns are quite simple, if you get it wrong you may find that saving that little bit of money on hiring a professional to do it yourself could cost you hundreds or thousands later on down the track. To save you time, trouble, money and a major headache, consider engaging a registered tax agent or accountant to help simplify things. They can ensure that you’re ticking all of the right boxes and are being compliant. They may even be able to help you solve any tax issues they come across.
When looking at tax returns, the ATO is going to pick up on certain behaviours that are a little out of the norm. If you say you’ve donated more to charity than you’ve earned within the financial year, this may be true but it could raise a few eyebrows. If you are always buying large equipment and materials for the office, be sure to be honest with how much it costs and keep a record of all of the expenses you’re putting in a claim for. If you think a claim may sound an alarm at the ATO, consider if the claim is worth it. If it is, just ensure you have all records handy in the event that you are audited.
Tax time needn’t be a stressful time. With the help of a professional, a record of all of your income and expenses and an honest return at the end of the year, you should have a stress-free tax time. Remember, these tips don’t guarantee that you won’t be audited, but they do help to minimise the risk.