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What to do if you get audited by the tax office this year

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While a lot of Australians are doing it tough in this post COVID-19 world, the ATO is still warning taxpayers they will be ramping up audits for dodgy tax return claims in 2020.

Each year the ATO contacts about 2 million taxpayers about their tax returns as they use ever-more sophisticated data matching technology to identify returns which require closer inspection.

Here's how to handle it if you receive an ATO audit or a data matching letter in 2020.

what to do if you get audited by the ato

1. You might not have done anything wrong

Just because you received an audit letter from the ATO doesn't mean you've done anything wrong.

Most of these letters are generated automatically by the ATO when something in your return is out of the ordinary or your claims are higher than others with the same occupation as you.

All the initial ATO letter will ask you to do is to provide evidence to support the claims in your return. As long as you can do that, you've got nothing to worry about

2. Do not ignore the letter

This is a big no-no. ATO letters will usually have a date they require you to respond by. Most often this is a few weeks from the date on the letter.

If you ignore the letter or bury your head in the sand, the ATO will make default rulings on all of the items in your return they have queries about.

The ATO has the power to do this. They can adjust details and remove deductions they're doubtful or uncertain about. This could end up costing you hundreds, if not thousands of dollars.

3. Come clean if you've done the wrong thing

Taxpayers tend to receive these letters off the back of common mistakes, for example, they forgot to include multiple incomes after switching jobs during the year, or they didn't realise that bank interest, allowances and Centrelink payments like Newstart and Youth Allowance are classified as income and must be declared on a tax return.

If you've made a mistake, the ATO is usually pretty understanding if you own up to it. Sure, they may adjust your return, but in most cases, they won't issue a penalty unless they determine you've deliberately tried to cheat the system.

4. Talk to your accountant

Part of your accountant's job is to liaise with the ATO on your behalf. Your accountant is working for you and has your best interest in mind. They can help negotiate with the ATO to ensure you're left in the best financial position at the end of the process.

Little can be done in some situations, but if a taxpayer disagrees with what an ATO letter says and has the evidence to support their claims, the ATO will usually be understanding and reverse its position. Your accountant can help you collect and submit any evidence you require.

If you haven't lodged your 2020 return yet

Don't let the ATO scare tactics prevent you from claiming a legitimate deduction.

A lot of the ATO media spin and scare tactics can have the effect of scaring people out of claiming deductions they're legitimately entitled to. If you leave legitimate deductions off your return you're essentially give money that is rightfully yours to the ATO.

Taxpayers miss out on hundreds of dollars every year by leaving off items they could legitimately claim. If you're not sure you're claiming everything you're entitled to, speak with your accountant, never go it alone. Remember, it's the ATO's job to collect revenue for the Government, not help you get a bigger refund.

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Liz Russell is senior tax manager at Etax.com.au, Australia's largest online tax return service. Liz has been with Etax since it launched in 1998 and brings more than 40 years' tax experience to the table. Her expertise lies within complex individual tax returns and ensuring all of her clients walk away with the best possible refund while staying within ATO rules and regulations.
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