Micro business operators are being warned about the consequences of getting their work-related tax claims wrong, with the Australian Tax Office rolling out real-time checking for online tax returns this year.
While employees are the most likely group to lodge their annual tax returns online, some operators of micro businesses also self-prepare their tax returns.
The tax office said on Monday it conducted approximately 450,000 reviews and audits of individual taxpayers in the 2014-15 financial year and those reviews and audits led to revenue adjustments of more than $1.1 billion in income tax.
The ATO uses data analytics to compare individual tax returns to those submitted by taxpayers in similar circumstances. If a “red flag” is raised, the tax return is reviewed by ATO staff, which can lead to delays in processing the returns and in situations where someone has deliberately claimed the wrong amount, a penalty may be charged.
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This year the ATO is checking work-related deductions in real-time, said ATO assistant commissioner Graham Whyte in a statement.
“If your claims are substantially higher than others in similar occupations, earning similar amounts of income, a message will appear, asking you to check them,” he said.
“This new process is just about helping you to make sure your claims are correct.”
“If you are doing the right thing you have nothing to worry about. If you make a mistake we will help you fix it up and correct your tax return. We will not penalise you if you genuinely tried to get it right.”
Australian taxpayers claim more than $21 billion in work-related expenses each year and while Whyte said the mistakes being made by taxpayers when completing their annual tax returns are “relatively small” at an individual level, “collectively the overall impact is significant”.
“From time to time we see people deliberately making incorrect claims,” he said.
“We’ve seen claims for car expenses where log books have been made up and claims for self-education expenses where invoices were supplied for conferences that the taxpayer never attended.
“Deliberately making incorrect claims is an easy way to get into some serious trouble. It’s just not worth it.”
Paul Drum, head of policy at CPA Australia, told SmartCompany it’s essential for business operators who self-prepare their tax returns to understand what they are legally entitled to claim.
“You need to ensure any expenses you claim have actually been incurred, that they relate to your business and that you have the receipts to substantiate the claims made,” Drum says.
“People need to make sure their log books are up to date and that that there is no mix-up between private and business expenses – on things such as motor vehicle and home office expenses.”
Drum says advice on claiming deductions is available for free on both the ATO and CPA websites, while anyone who needs professional advice should talk to a registered tax agent.
“Dodgy” work-related expense claims seen by the ATO:
The ATO has revealed five cases where individual taxpayers have attempted to make what it’s calling “dodgy” work-related tax deductions:
• A railway guard attempted to claim $3,700 in work-related car expenses, which he said was related to him needing to carry bulky tools between his home and workplace. However, his employer told the ATO the instruction manuals and safety equipment could be stored securely at the workplace, leading the ATO to disallow the expenses as it was the employee’s choice to transfer the equipment.
• A “wine expert” attempted to claim thousands of dollars in expenses incurred while in Europe for a holiday, including $9,000 worth of cases of wine, on the basis that he had visited wineries while travelling. His employer confirmed the claims were for private expenses and all the deductions were disallowed.
• A medical professional received a “substantial penalty” after making a claim for expenses from attending a conference in America, when in fact they were in Australia at the time of the conference.
• A taxpayer’s claims for car expenses were disallowed when the ATO found the kilometres recorded in their logbook were for days when the taxpayer was out of the country and there were no records of the car passing through toll road areas.
• A taxpayer who was completing a study program attempted to claim deductions of $57,000 in relation to a leased property, and $7,500 in relation to a storage facility, on the basis that he need to rent both spaces for “peace and quiet for uninterrupted study which he could not have in his own home”. The claims were not allowed by the ATO.