Tax time: Are you running the risk of ATO penalties for false or misleading information?
Article by Heather Whye
Over-claiming and under-reporting is a risky practice, with the Australian Taxation Office (ATO) becoming increasingly sophisticated in its data matching approaches.
As a taxpayer, you can expect greater scrutiny if your claims are excessive.
To avoid the risk of ATO penalties for false information, understand your obligations as an individual and as a business owner when claiming deductions.
These are detailed below.
What individuals must do to avoid the risk of ATO penalties for false information
To avoid the risk of ATO penalties for false information as an individual, follow these guidelines…
With $21.98 billion claimed in deductions for work-related expenses in 2018-19, this is an area under intense review by the ATO.
To claim a deduction, you need to have incurred the expense yourself and not been reimbursed by your employer or business.
In most cases, you need a record proving you incurred the expense and be able to show that the expense is directly related to how you earn your income.
Ensure that you only claim the work-related portion of items you use personally, such as mobile phones or internet services.
When you don’t have to keep records
If your claim for work-related deductions is below $300, you do not have to keep a record of the expense. Work-related clothing has a $150 record keeping limit.
However, the ATO is concerned that taxpayers are ‘automatically’ claiming these deductions without incurring any expenses, in the belief that it’s not necessary to support the claim. It is!
In general, you cannot claim the cost of your work clothes or dry cleaning expenses unless the clothes are occupation-specific.
This includes clothing like chefs’ whites, uniforms with a logo, or protective gear necessary due to workplace hazards.
Jeans don’t count as protective wear! And just because you have to wear a suit to work does not make it deductible.
Rental property deductions
What you can claim for your rental property has been significantly curbed.
For example, you can no longer claim deductions for the cost of travelling to inspect the property or claim depreciation deductions for second-hand plant and equipment.
What are the risks of ATO penalties for false information for a business?
To avoid the risk of ATO penalties for false information in your business, understand that the ATO has stated that they’re looking closely at taxpayers who:
- Set up or change a company structure;
- Claim motor vehicle expenses;
- May not be correctly apportioning personal and business use of deductible items.
A multitude of data-matching programs and benchmarks can be used to catch out those attempting to rort the system.
For wealthy groups and medium businesses, the focus is on those who structure to avoid tax.
- International risk – international profit shifting and corporate restructuring;
- Inappropriate arrangements that seek to extract profits or capital without paying the appropriate amount of tax;
- High-risk trust arrangements attempting to gain advantage beyond ordinary trust arrangements or tax planning associated with genuine business or family dealings.
If the ATO suspects that there is a problem, you may be contacted to justify why decisions were made to structure your affairs or the affairs of your company in a particular way.
No tax deductions if you don’t meet your tax obligations
From 1 July 2019, if taxpayers do not meet their PAYG withholding and reporting obligations, they will not be able to claim a tax deduction for the following payments:
- Salary, wages, commissions, bonuses or allowances to employees;
- Directors’ fees;
- Religious practitioner payments;
- Payments made under a labour hire arrangement; or
- Payments made for services where the supplier does not provide their ABN.
The main exception is where you realise that there is a mistake and voluntarily correct it before the ATO begins a review or audit.
In these circumstances, a deduction may still be available if you voluntarily correct the problem but penalties may still apply for the failure to withhold the correct amount of tax.
There is also an exception for situations where you make payments to a contractor but then later realise that they should have been paid as an employee, as long as the worker has provided an ABN.
Recording payments to contractors – combatting the black economy
From 1 July 2019, security providers and investigation services, road freight transport companies, and computer system design and related services businesses will need to collect specific information in relation to payments made to contractors (individual payments and total for the year).
These businesses will need to lodge an additional report to the ATO with this information. The first report will be due by 28 August 2020.
Businesses in the building and construction industry, cleaning services, and courier services need to report payments to contractors in the year ending 30 June 2019 by 28 August 2019.
Concerned about receiving possible ATO penalties for false information? Talk to us and we’ll be happy to walk you through your options