Pushing too hard with deductions!

In 2014, a Sydney man had to pay a hefty penalty after the ATO discovered he was falsely claiming thousands of dollars on work related expenses.

McAdam Siemon Business Accountants Upper Mt Gravatt, Noosa Heads & Maroochydore. Specialising in Accounting, Taxation, Management Rights, SMSF Administration, Business Advisory, Business Valuations , Management Rights specialist accountants, If you push too hard the tax man will get you.

If you push too hard with deductions the taxman will get you.

This guy worked as a salesperson and under the conditions of his employment he was able to work from home. He was advised by a Registered Tax Agent.

The dispute arose out of an audit of his tax affairs triggered by his 2010 tax return in which he declared a taxable income of $21,377, and claimed deductible items to the value of $97,162.

The ATO disallowed various tax deductions for the 2011 and 2012 financial years.

The tax office also imposed a penalty on the basis that he or his agent had “failed to take reasonable care or comply with tax law when claiming work related expenses”.

The sales person disputed this and took the matter to the Administrative Appeals Tribunal.

Here are examples of some of the expenses he tried to claim deductions for:

  • Thousands of dollars for secretarial services completed by his son. (His son was around 7-years-old at the time)
  • Thousands of dollars of groceries as work related expenses (The groceries included cheese in a can and 39 packets of Monte Carlo biscuits.
  • Clothing, rubber soled shoes, dry cleaning, sunglasses, broad rimmed hat and sunscreen (just to name a few!)
  • Home office expenses
  • Other work related expenses

To read the full rulings click on the link below.

To find out more, please contact us

So, what are the deductions you can claim?

(Source: ATO, 14 March, 2016)

When completing your tax return, you’re entitled to claim deductions for some expenses, most of which are directly related to earning your income.

To claim a work-related deduction:

  • you must have spent the money yourself and weren’t reimbursed
  • it must be related to your job
  • you must have a record to prove it (there are some limited exceptions)

If the expense was for both work and private purposes, you can only claim a deduction for the work-related portion.

Follow the links below for specific deductions you can claim:

The staff at McAdam Siemon will get your deductions right because we have the checks and balances in place.

 

 

Random ATO Audits 2016

 

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Random ATO Audits  2016

The ATO has decided not to reduce their random audits in 2016. They have now confirmed that random audits will recommence.
The compliance program will be physically audited, targeting 600 individuals and small businesses and focusing on underreporting and tax evasion.

There is good news for some though.

The ATO has contacted 500,000 taxpayers advising that their tax returns will not be subject to further review. This ATO project is aimed at taxpayers with straight – forward affairs and a taxable income of less than $180,000.
The ‘certainty letter’ is an assurance that the ATO will not review the return unless they find evidence of deliberate avoidance or fraud.

What is a ‘certainty letter’?

This year the ATO is sending letters to some taxpayers as part of a trial to confirm their 2014-15 tax return is finalised.

Record Keeping for Tax Purposes

 

 

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Frequently our clients ask us these questions with regards to record keeping for tax purposes.

  • How long should I keep my records
  • Is it acceptable to keep my records in an electronic format, or are paper copies sufficient?
  • Why should you keep records?
  • How do I know what records I should keep?

How long are you required to keep your records? 

Generally speaking, all of your evidence must be kept for five years from the date you lodge your tax return:
i.e. If you lodge your 2015 tax return on 1 December 2015 any records associated with that return (generally) can be destroyed on 2 December 2020.

However: 
·      If you acquire or dispose of an asset (e.g. shares or a rental property, dividend reinvestment statements) – 5 years after it is certain that no capital gains tax event can happen.
·      If you are in a dispute with the ATO – 5 years from the date you lodged your tax return and the dispute is finalised.

The Australian tax system relies on taxpayers self-assessing, so what do you need to keep?

As far as the ATO is concerned, you can store your documents in either format. Remember though…

  •  If you keep paper copies they must be a true and clear reproduction of the original.
  • If you keep your records electronically, we strongly recommend that you keep backup copies – what if your hard drive is corrupted?

Why should you keep records?

  • To provide written evidence of your income and expenses.
  • To help you or your tax agent prepare your tax return.
  • To ensure that you are able to claim all your entitlements.
  • In case the ATO asks you to prove the information you provided in your tax return.

What records should you keep? 

  • Any payments you have received.

  •  Any expenses related to payments you have received.
  • When you have acquired or disposed of an asset (shares or rental property)

  • Any tax deductible gifts, donations and contributions.

You may also need to keep records in some other categories, or for other members of your family – for example, if you receive the family tax benefit.

You may decide not to keep particular records – for example, because you expect to claim for only a small amount of business travel. If it turns out that you travel more than you expected during the year, you may be limited to a smaller claim than if you had kept more records.

If you are unsure about whether to keep or destroy a record please do not hesitate to give one of the team at McAdam Siemon a call.

Kind regards

Rob McAdam, McAdam Siemon Accountants

Rob McAdam

 

Tax Audits are on the increase are you prepared?

We are noticing an increase in tax office audit activity over the last 6 months.

The area’s most likely to be audited are:

  • Cash economy businesses
  • Businesses with continued losses
  • People who have things missing, such as;
    • Documents lodged that are incomplete
    • Non-lodgement of documents
    • Non-remittance of payments
  • Super funds that continuously report breaches when audited.
  • Mismatches between reported data and third party data.

The ATO uses benchmarking and data matching when determining which business are to be audited.

Benchmarks such as key financial ratios are used to compare businesses against each other. They are updated annually and are a method of risk assessment for audit selection.  The benchmarking results are published on the tax department website.

The ATO uses data matching to identify any anomalies. Such data matching includes merchant data, motor vehicles (expensive cars vs affordability based on disclosed income), real estate, PayPal/eBay, gambling (government organisation reports) and offshore transfers.

The ATO does recognises that audits can be very expensive and disruptive for a client this however does not necessarily mean that you will not be audited. The costs generally blow out if your paper work is not easily accessible or ties back to key issues. In our experience they also impose tight timeframes to forward requested information back to them.

There are two types of audits:

  • Desk audits
  • Field audit

Desk audits are of a limited scope and short turnaround time, generally dealing with lodgement risks. We generally see these with BAS lodgements and a refund or payment is generated that is outside the normal  BAS reported. These audits are often conducted by compliance staff who generally follow set procedures.

Field audits are more complex, whereby the organisation will receive a questionnaire for completion prior to a meeting. It is recommended that both clients and their accountants be proactive and deal with any issues they identify following completion of the questionnaire. An interim report is generally issued following a field audit which provides an opportunity for the client to raise issues with conclusions reached by the ATO. These issues are considered and a final report is issued.

How to prevent an audit:

  • Make sure you are not attractive audit candidates
  • We will advise you if we believe your business is outside of benchmarks / business norms
  • Maintain proper records

How to prepare for an audit:

  • Have consistent processing for handling your records
  • Proper documentation – instill good habits in your business
  • Businesses are individual – there are often explanations for how each business is run, so make sure that these are documented
  • Keep on top of lodgements and debt
  • Should you receive an audit letter don’t ignore hoping it will go away – it won’t.  Much better to be proactive rather than reactive.

The proper management of audits can significantly reduce the long term financial impact on clients.

Should we receive an audit notification we will help you deal with the tax department in a proactive manner and try to identify any areas of risk on a year by year basis as we prepare your financials and tax returns to ensure you have the documentation to support the position taken.

I encourage you to read more about our Benchmarking Services.

Please view the ATO Small Business Benchmarks

Audits on the increase

We’re noticing an increased level of audits by the ATO and State regulators. Key audit areas include payroll tax and GST.

With payroll tax, the regulators are looking for those who understate or avoid their payroll tax obligations. A few of the problem areas are:

Contractors– just because you have a contract in place does not guarantee that the person is a contractor for payroll tax purposes (or the superannuation guarantee laws). The law looks at the character of the relationship. Don’t rely on what your contractor tells you. We cannot emphasise enough how big the problem of mischaracterising contractors is.

Grouping provisions– Often an entity by itself can be under the payroll tax threshold but when grouped, is drawn into the payroll tax net. Subsidiaries are a common example of a group but the definition can be very broad extending to shared employees and shared control. Where there is a group, the payroll tax threshold applies to the whole group.

Interstate wages– Generally, where you have interstate wages, the payroll tax threshold is determined as a portion of your payroll in the relevant State or Territory.

Miscalculating the payroll tax threshold– Calculating the payroll tax threshold is not as simple as just looking at your wages. Payroll tax captures Director fees, fringe benefits, bonuses and commissions etc. Also. for part years – for example where you are only in operation for part of the year in that State or Territory – are generally assessed on a pro-rata basis rather than actual payroll for the year.

If your business has underpaid its payroll tax obligations then you can also expect a call from the workers compensation people.

With GST audits, if you have a refund due, your business is more likely to be audited. The trigger for a GST audit is often large or abnormal refunds but can be as simple as not reconciling the quarterly activity statements.

It is worth remembering that every business is a potential audit target and even if you pass with flying colours, it will cost your business potentially thousands of dollars and even more if there is a problem. The best insurance is not to give the regulators any reason to come and visit but failing that, audit insurance is available to protect you against the inevitable cost to your business.

We can do a full compliance risk review for your business to protect you from the ATO and other regulatory bodies. GST and payroll tax are just two of the areas we cover.

Please contact the team at McAdam Siemon if you would like further information.