One of the most interesting publications the ATO releases each year is who is under the audit microscope in the coming year. See below a summary of the most important items I have found:
1. SMSF that are using a low cost auditor.
Why? Superannuation funds control billions of dollars in investment funds and attract significant concessions. SMSF’s have stringent regulatory requirements and therefore, how can an auditor check that the SMSF is meeting their requirements for $100-$200? The ATO believes these types of audits are low cost, meaning poor quality and they aren’t undertaking proper and comprehensive SMSF audits.
2. The cash economy.
Once again, the cash economy is going to be targeted quite heavily. What is different this year? The ATO is going to cross-reference insurance policies over luxury lifestyle assets (boats, luxury cars, planes). The ATO is obtaining data on the following:
- Marine vessels over $100k
- Motor Vehicles over $50k
- Thoroughbred horses over $65k
- Fine artwork over $100k
- Aircrafts over $150k
How are they going to use this data? Mainly in two ways:
1. The asset betterment approach– an individuals net worth is estimated at the beginning and end of an income year and the increase is compared to what income the individual has lodged through their tax return to see if there are material discrepancies, i.e. if an individual has reported taxable income of $50k but their net worth has grown by $500k in a year, this could trigger an audit.
2. The ATO is obtaining names of entities the above assets are purchased in. If a motor vehicle like a Porsche for example has been purchased in a company and its value is $100k, you would expect there would be FBT applicable. Also, artwork, motor vehicles, boats etc that are purchased inside a SMSF could also trigger an audit.
3. Increase in data matching programs for real property transactions.
The ATO is obtaining a complete real property transaction history dating back to 20 September 1985! Why? The ATO will be making sure individuals are declaring capital gains and rental income correctly.
4. Unusually high work-related expense claims.
The ATO are going to compare individual work related expense claims against similar taxpayers in the same occupation earning a similar level of salary. When the individuals claim is higher than the average, the ATO will write to the individual’s tax agent advising them to provide details.
5. Travel expenses associated with travel that begins and/or ends at a taxpayer’s home is under the microscope.
The ATO have identified that individual taxpayers continually get this wrong and therefore, if an individual is claiming these expenses, expect a letter from the ATO.
6. Internet based businesses like Uber drivers, Airbnb and YouTube income earners will be under the microscope.