The ATO has a vigilant tax audit program in place. So at tax time it’s critical to assess the risk profile of your investments and know what they’re looking for.
With group certificates and financial year end investment statements about to hit, the attention of most investors turns to tax.
The aim is not to pay more tax than you need to, but there is a fine line between paying what’s fair and pushing the envelope. When you think of tax, always have in the back of your mind how you would defend your position if the ATO came knocking on your door.
Assessing the risk profile of your investments is the first step. We all know deep down when we’ve sailed too close to the wind when it comes to tax advantaged investments and structures. Now is the time to check back with your advisers and accountants to make sure those investments haven’t been affected by any recent changes to tax rulings or policies. With such a vigilant tax audit program in place, it may be worth pulling back from any “sharp end” tax planning measures.
Tax time record keeping is critical
Self-managed superannuation funds are a case in point. There have been some significant changes in this area. Which means if you haven’t checked your trust deed then your tax risk has increased substantially.
Record keeping is also critical. Under our tax laws you are assumed to be guilty until you prove your own innocence. Tax Commissioners have told me the ATO wins 90 per cent of cases purely on record keeping. In other words, the taxman wins 90 per cent of cases purely on the fact the taxpayer doesn’t have the appropriate records to substantiate their positions. The argument doesn’t even get to the tax issues being contested.
So meticulous record keeping is essential. No shoe boxes, just plenty of records, receipts and spreadsheets.
Foster a good ATO relationship
Your relationship with the ATO is also important. They have a job to do and enormous powers. So be professional, co-operative and work through any issues civilly.
There is just no point in being argumentative or angry – you are in a no-win situation by being objectionable.
The ATO website is a tremendous source of information and should be visited regularly if you have any queries.
So what will cause the taxman to take a close interest in you?
Work-related expenses: An old chestnut where we try and claim even the most obscure expense. The ATO has issued a series of industry booklets on the types of work-related expenses than can be claimed. They are all on the website. Check yours against their list and assume that any deviation will attract attention.
Capital gains tax: How it’s worked out, the costs claimed and any offsetting capital losses.
Tax losses from prior years: You can generally carry forward a tax loss indefinitely, but you must claim a tax loss at the first opportunity. You can’t hold onto losses to offset them against future income if they can be offset against the current year’s income.
Rental property: With so many Australian’s borrowing against the equity in their home to buy a rental property, this is a complex tax area with which you simply must be familiar. My advice is to get some professional help as the ATO puts a lot of resources into this area.
Data matching: This is where you declare, say, dividends from shares in your tax return but then the ATO matches it against the records they receive from the bank or company. Be honest as they have ways of checking.
The bottom line is “don’t kid yourself”. Play it very straight and conservative when it comes to tax. Invest for good returns rather than a tax break.