TAX TIME: What it’s like to be audited by the ATO
WHEN the tax man puts your return under the microscope, you have to give him everything - even the number for your local Pizza Hut.
For Tasmanian aircraft engineer Ben, getting audited two years in a row for the same claims felt "a bit like intimidation". Both audits came back clean, but delayed his tax refund by up to two months.
The 32-year-old, who asked not to use his last name, earns about $200,000 a year and makes large work-related deductions for professional training courses and mobile phone bills, as well as investment property claims.
"I was audited last year and the year before," he said.
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"Basically I had a lot of training the (first) year, a lot of expenses and also just investments. It was above normal, deductions were much higher than years before but that's because I did an aircraft engineering training course in Brisbane. I was away for around nine weeks."
After filing his tax return through an accountant, he was expecting his refund within seven days, but it wasn't until his accountants chased up with the ATO four weeks later "they said they were going to audit me".
"The communication was pretty poor," he said.
At first the ATO "just wanted more explanation on some of the claims", which his accountants sent through on his behalf.
"Then they started getting real nitpicky," he said.
"As a tradesman I've got a phone, I claim about 30 per cent. They wanted all my phone records, my phone bills from Telstra. I had to go through and label beside each number, I had to write who they were - who's work, who's personal, Pizza Hut."
He also had to turn over all of his receipts from his training course. "Food, fuel, all those kinds of things," he said. "I had hundreds of receipts. With the property (deductions) they just asked for more explanation."
The first year's audit came back clean but it "probably took seven or eight weeks".
"It was a huge pain, I had a credit card bill I was looking to pay," he said.
Then last year, it happened again. His return was delayed and the ATO again informed him he was being audited, asking "pretty much the same questions except they didn't ask about my phone".
His accountants queried why he was being audited for the second year in a row. "My case manager from the ATO didn't even know I'd been audited the previous year," he said.
"Everyone understands they need to keep the system honest but in my case I thought I had all the receipts, my claims were all legitimate. Everything was approved. To get done twice in a row for the same stuff was intrusive, a bit like intimidation really."
Ben, who describes the experience as "quite stressful", says his biggest piece of advice is to go through a tax agent.
"They definitely made it less stressful," he said, adding he hasn't done this year's return yet "but fingers crossed" it won't be three in a row.
H & R Block director of tax communications Mark Chapman said while full-scale audits where the ATO goes over everything with a "fine-tooth comb" were generally reserved for wealthy people with complex tax affairs, the ATO was also devoting "a lot of resources to target ordinary taxpayers".
"In particular in relation to work-related expenses, the ATO is really looking at those very closely, in some cases really small claims for things like laundry," he said.
Over the past few years the ATO has dramatically ramped up its crackdown dodgy work-related claims by individual taxpayers, which it says make up the biggest chunk of the $8.7 billion "tax gap".
Mr Chapman said if taxpayers received a "please explain" letter from the ATO and were not already represented by a tax agent, they should immediately find one.
"If you've lodged the return yourself and you get one of these audit interactions you should be looking to get a professional," he said. "Don't try to handle it yourself, it's very easy to make the situation worse by doing or saying the wrong thing or ignoring letters."
The most important thing was to "respond promptly and give them what they're asking for", he said, adding that "unfortunately it's pretty normal" for the ATO to ask for detailed information like in Ben's example with his phone bill.
"A lot of the questions the ATO asks are quite detailed," he said. "You could if you're so inclined see some of those questions as a little invasive, but the ATO at the end of the day has the power to ask those questions. You don't really have the power to push back, the best thing to do is suck it up and answer."
An ATO spokeswoman said that all individual income tax returns were "automatically risk assessed". "Where there is significant risk, or an error or omission is identified, the return is stopped and the return adjusted to avoid an incorrect refund being paid to a client that may have resulted in future debt," she said.
"For example, where we have third-party data reported to the ATO that does not match what was declared in the tax return we will correct the return before issuing the refund for the client."
She said since July 1 this year the ATO had already adjusted more than 52,000 tax returns due to simple errors and omissions.
"In addition to these adjustments made prior to refunds being issued, our audit program continues throughout the year, meaning that while we may not review all claims in detail at tax time, where we identify claims that are outside the norm the ATO will contact people later to review the claims made and request substantiation where necessary," she said.
"Our strategies focus on claims that appear high, for example claims that are high in comparison to other people in the same profession at the same income level. For taxpayers who have a legitimate claim, the best approach is to ensure they keep records to support their claim."
She added, "The myDeductions tool in the ATO app makes it easy to store a photo of receipts so that it's easy to have on hand when needed."