The ATO will scrutinise every individual tax return lodged for the 2018-19 income year to find instances of incorrect claims. It is encouraging taxpayers to document supporting evidence for all claims as it seeks to recoup $8.7bn in lost tax revenue each year from small over-claims by a large proportion of taxpayers. Red flags which may lead to ATO contact or audit include under reported income (from third party data) and deductions that appear high compared to others with a similar job and income level.

As this year's tax time comes to a close, the ATO has warned that it will scrutinise every individual tax return lodged to seek out incorrect claims. In particular, it will be on the lookout for under reported income as indicated by third party data, and deductions that appear high compared to people with a similar job and income level.

As a part of its focus on closing tax gaps, every year, the ATO contacts around 2 million taxpayers regarding their returns. Whilst it notes in a majority of cases, an audit is not its first course of action, if it does decide to take a closer look at your tax return through an audit, it will contact you or your tax agent.

Most of the time when the ATO contacts you or your agent about your tax return, it will be looking for documentation or evidence to support your deductions or claims. It may even contact third parties such as your employer to verify certain deductions (ie clothing/uniform, possible reimbursed expenses, or whether the expense was related to earning your income). Therefore, good record keeping throughout the year is essential to defend against any audit.

You may be wondering why the ATO is targeting such small fry when multinational companies get away with paying minimal tax. According to the ATO, it understands that most taxpayers over-claim by a little, but small amounts of overclaiming by a large number of people adds up to $8.7bn less each year in revenue collected. So, by its thinking, it really is a case of a every little bit counts.

For example, you may be entitled to a deduction for depreciation on a laptop or other technology used for work but had incorrectly calculated the claim or omitted it altogether.

In the event of an audit and you're found to have over-claimed, the ATO may apply penalties depending on your behaviour. If you're found to have over-claimed based on a genuine mistake, for example, if you've claimed the costs which are private and domestic in nature that are sometimes used for work or study (eg sports backpack or headphones), the ATO may choose not to apply penalties.

However, in cases of fraudulently claimed deductions, the ATO will apply penalties in addition to requiring the repayment of any refunds issued. It notes in extreme cases, prosecution through the courts may be pursued. The ATO gives an example where a taxpayer was convicted of making false and misleading statements in their tax return which resulted in the repayment of the refunds totalling $45,000, a fine of $3,000, penalties totalling $20,000 as well as court costs. The claims related to travel, clothing, and work-related expenses which were paid by the employer, as well as charitable donations to an organisation that was not registered as a DGR.

If this all sounds scary, don't worry, we can help you get your income and deductions right the first time, so you'll have nothing to worry about. If you suspect that you've made an honest mistake in your tax return either this year or previous years, we can help you lodge an amendment and avoid any penalties. In the event that you are contacted, we can ensure a smooth process and liaise with ATO to ensure the best outcome.

reception@rgoodman.com.au