How To Avoid Getting A Tax Audit by The ATO in 2023

By Kaleem Ulah

July 19, 2023

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You are not the only person who has a chill down their spine when they hear the words "ATO Tax Audit." There are a few warning signs that the ATO can recognise that might result in a tax audit being conducted. When you start working on your next tax return, having an understanding of some of these factors can help set your mind at ease and make the process go more smoothly. Tax season does not have to be a stressful and daunting experience for taxpayers and business owners in Australia as long as they are aware of the common errors that they should try to avoid making.

According to the Australian Taxation Office (ATO), maintaining compliance with the regulations is the most effective strategy to sidestep a tax audit. After submitting their forms, many taxpayers, having just finished the annual tax filing process, hold their breath in anticipation of an audit by the Australian Taxation Office (ATO). However, things shouldn't be like that at all.  Approximately 2 million taxpayers are contacted by the ATO each year to clarify information that was included in their yearly return. There is no doubt that it will be the same this year, but the ATO has reassured citizens on multiple occasions that there is nothing to be afraid of provided the yearly return is honest and accurate.

Ways You Can Avoid Tax Audits

We have explained how you can lodge your 2023 tax without you getting audited below.

1. Ensure your deductions and calculations are correct

Checking your numbers, then checking them again, is a smart method to make sure that everything is in order before you send in your tax return. It's not the most thrilling activity in the world, but it is a good way to make sure that everything is in order. Working with a tax agent is a convenient method to ensure that you click all of the right boxes since a skilled accountant will spot any errors and will bring them to your notice. Since it is simple to make mistakes, working with a tax agent is a handy way to ensure that you tick all of the appropriate boxes.

2. Keeping accurate records

Everyone is fully aware that it is critical to keep the receipts for any items that they claim, regardless of whether those items are digital or tangible. It is important to keep in mind that the ATO will scrutinise a cash-based firm more thoroughly; hence, it is essential to keep records of all transactions. If you want to avoid any problems, you should be particularly careful with your records. This will assist, provided that you are not intentionally understating your income.

Investing in reliable accounting software may be one solution to this problem.  When it comes to organising your records, you can use one of the top accounting software in the market. In addition to providing the user with the opportunity to log in from any location, it streamlines the accounting process, resulting in a final product that is not only quicker but also more affordable and accurate records.

3. Insure Yourself!

Consider getting an insurance that covers audits. If you have audit insurance in place, you won't need to worry about the professional fees that will be paid as a result of handling an audit from the ATO. This can relieve some of the burden. The only charges that are covered by an audit insurance policy for tax compliance are the professional costs of examining and responding to an audit programme from the ATO. This insurance does not cover any direct or indirect costs that arise from unpaid tax liabilities, including fines and interest on those liabilities.  

4. Keep your documents for five years.

Whenever the ATO performs an audit, they will go back over your previous tax returns and look at their history. From the day you receive a notice of assessment until the day you must file your income tax return, the time limit for individuals and small enterprises is normally two years, while the time limit for other taxpayers is four years. Bear in mind that you are required to preserve your records for a time that is sufficiently long to cover both the record-keeping period of five years and the review period for the evaluation.

5. Declare all income

You must report all individual income that you get. If you run a business, you must report all business revenue. This includes any money you may have received through short-term contracts or freelance work as an individual (for example, driving for Uber), as well as any additional passive income such as interest, share dividends, Airbnb rentals, and government perks.

To identify unreported income, the Australian Taxation Office (ATO) uses sophisticated data-matching technology. An investigation by the ATO may start if their detecting methods lead them to identify you. When you declare all of your income, this includes the contributions from both domestic and foreign sources. As a part of their efforts to ensure that all Australians pay the appropriate amount of tax on their income, the Australian Taxation Office (ATO) has data-sharing relationships with more than 40 different countries. 

6. Live a life that relates with your tax returns

An audit by the ATO might be prompted if you have a lavish lifestyle but declare a more modest amount of income than you make. For instance, if you frequently take expensive trips overseas or purchase fancy automobiles or yachts, this can lead the ATO to suspect that you are not declaring all of your income, which can subsequently lead to audits by the ATO. They will be perplexed as to how you can maintain the lifestyle that you do and why you have what appears to be unexplained money. 

Auditors from the ATO are known to look through the social media accounts of people they have reason to believe are living lifestyles that are inconsistent with the incomes that they have stated. They are looking for evidence of lavish spending, and they have access to data on both bank transactions and airline tickets.

7. Declare your eligible deductions

When preparing your tax return, you may be eligible to claim several different deductions; however, the specifics of these deductions are highly dependent on the line of work or industry in which you are employed. You are only permitted to claim legal deductions, and you are required to have receipts or other paperwork to back up any claims you make. Getting creative with your deductions is a poor idea because if you are discovered, you won't just have to pay it all back, but you'll also find yourself slammed with a big fine on top of that.

How to Avoid Getting Audited with The Kalculators

When dealing with something as sensitive as a tax return, it is always suggested to seek the advice of a professional. Business owners can receive assistance with taxation planning, consultation, and guidance from the Kalculators. When it comes to tax season, having your business' tax returns properly prepared is necessary to ensure that everything is running smoothly. We assist you in compiling your monthly, quarterly, and annual activity and instalment statements to ensure that the information submitted to the tax department is accurate and that your tax returns are accurate as well.

Our professionals are always ready to lend a hand! It's easy, and you won't be taken by surprise when you work with The Kalculators. We listen and we deliver. We offer solutions to safeguard your assets, as well as assistance in decreasing your tax liability and making progress towards your objectives. Book a consultation today so we can help you through your tax return process.

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About the Author / By Kaleem Ulah

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Kaleem is CEO & Author at "The Kalculators". With more than 10 years of experience in financial services, He built Kalculators to transform your financial challenges into strategic triumphs!

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