What Does the ATO Look for in Tax Audits?

The ATO’s report reveals an $8 billion-plus shortfall between what individuals pay in tax and what the office believes they owe. To close the tax gap, the ATO will scrutinize work expenses, omitted income, and rental claims more closely. ATO Second Commissioner Jeremy Hirschhorn states that these key aspects will undergo increased data investigation in tax audits, with a particular focus on the 90% of rental claims that require adjustment.

Increased Data Investigation in Tax Audits

In last week’s Tax summit, Mr. Hirschhorn discussed some points contributing to the shortfall. He emphasized that incorrect claims account for about $4 billion of the tax gap. Additionally, he highlighted the need for tax professionals to collaborate with the ATO in developing a shared understanding of allowable work-related expense claims, as many individuals seek agents to maximize their returns.

Omitted Income – A Significant Issue

The second issue, according to Mr. Hirschhorn, involves omitted income, particularly cash wages and income from the sharing economy and various gigs, estimated to amount to $1 billion in unpaid tax annually.

The third issue identified is property investments, covering the full spectrum from true investment properties to occasionally rented-out holiday homes, contributing about $1 billion to the net tax gap.

Mr. Hirschhorn also mentioned that their work with 2021 tax returns revealed over 2 million rental property owners declaring over $45 billion in income and about $43 billion in expenses. The random inquiry program applied to these claims helped determine the tax gap estimate, with nine out of 10 returns reporting net rental income requiring an adjustment.

The ATO emphasizes the importance of addressing this disturbing problem and continually encourages individuals and tax agents to collaborate and find common ground to resolve these issues.

How a Leading CPA Accountant Can Help

It is important to note that due to the close scrutinize of the tax returns, ATO at the moment, is taking time to check the tax returns against their database for tax audits. Hence it is delaying the tax return time. As the leading CPA accountant in Inner West Sydney Ashfield, Belrose Ashfield and Adelaide, we are here to help; we will do your tax return very carefully and make sure all work-related deductions are claimed and that the audit risk is being minimized.