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Timely tips to save you some trouble at tax time

AUSTRALIAN BUSINESS REVIEW   November 5, 2018   James Gerrard

Tax refunds are top of mind for most people this time of year as they collect information and put together their returns. With more than 70 per cent of Australians using a tax agent, the key weeks are probably now until the end of the year.

Before you get too far into your efforts it is always good to know where the tax office is up to on various items. For example, just a few days ago the ATO said they were now tracking the share trading of 5 million people!

If you are an active investor you probably have multiple interests and multiple points of entry for the ATO to examine. Today I want to look at two areas that have come across my desk regularly in the last few months.

Businesses that are registered for GST need to lodge their business activity statements (BAS) on a quarterly basis. In the lodgement, business income and expenses are summed up and the net GST payable to the ATO. In other words, as most businesses run at a profit, the GST collected from revenue exceeds the GST paid on expenses and so the difference needs to be paid to the ATO.

However, there have been several cases where people have made up fictitious invoices so that they can claim back a GST refund. Phil Renshaw, associate director with BDO Perth, says “a business which has made a genuine mistake over the amount of GST credits claimed wouldn’t be considered for prosecution. However, there have been a couple of cases recently where companies have fabricated invoices for items never purchased.

“They have then lodged the BAS and claimed a tax credit on GST paid resulting in the ATO paying them cash they were not entitled to.”

In one case, a 58-year-old Victorian man was wrongly paid more than $1 million by the ATO in GST refunds. ATO deputy commissioner Will Day said: “This was not an honest mistake by a small business owner trying to do the right thing — it was a calculated and deliberate attempt to commit fraud and steal money from taxpayers.” The man was prosecuted by the ATO and sentenced to four years and two months’ jail by the County Court of Victoria.

And it’s not just blatant manipulation that the ATO is looking out for. Nathan Vant, certified practising accountant with Ricardo Accounting, says: “The ATO also focuses on the validity of invoices. A taxpayer is only able to claim an expense deduction and input tax credit from valid invoices. A taxpayer may make an expense claim believing they are holding a valid tax invoice but it is not valid and if audited, the ATO can reverse the deduction.”

Common issues with invoices include the supplier of the invoice adding a GST component to the invoice but in fact not being registered for GST. Renshaw says: “It is good practice for taxpayers who are engaging new suppliers to use the government website called ABN lookup to verify details. It will confirm their ABN and GST status and is a good place to go to check business legitimacy.”

But it’s not all doom and gloom from the ATO.

It is estimated that there are 200,000 Australians who haven’t lodged a tax return in the last financial year, but if they did, they would be entitled to a tax refund. Renshaw says: “Although there is an obligation to lodge a tax return if your taxable income is higher than $18,200, which is the tax-free threshold, many people who earn less than this should still lodge a return, particularly those who are semi-retired or retired and do occasional work.”

Vant agrees: “People who work casual or part-time jobs may have tax deducted from their pay without realising. And for many, their total income is less than $18,200 so they think there is no need to do a return. However, these people should definitely be lodging tax returns as they’re likely to get all the tax withheld back.”

While incorrectly claiming GST credits and getting correct invoices are on the ATO’s radar, those who earn ad hoc or casual income should make sure they lodge returns, even if it amounts to below the tax-free threshold, to ensure that they, rather than the tax office, end up with extra money in their back pocket.

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