According to ETax senior agent Liz Russell, the first thing Aussies need to know is that simply sweeping the letter away won’t fix anything.
“The Australian [Taxation] Office has the power to remove deductions and change details that it thinks are suspicious. If taxpayers avoid opening a data matching letter or bury it in the backyard and do nothing, they risk their return being adjusted based on assumptions. This can lose taxpayers hundreds, if not thousands of dollars,” she said.
“Many taxpayers don’t realise that the ATO could audit their return anywhere from one month to even two or three years after it is lodged. Generally, taxpayers have between two to three weeks to respond to an ATO letter so it’s important to take action as soon as a letter is received. Jump straight on the phone to your tax agent and get advice on what to do next.”
Ms Russell explained that the ATO will use data matching technology to scrutinise suspicious claims and will send data matching letters to the taxpayers in question, querying the suspicious entries and outlining the changes it plans to make.
These lessons can often make their way to well-meaning taxpayers who made a mistake, like failing to include one PAYG summary after changing jobs, or not declaring bank interest or government support payments as income, Ms Russell said.
The fact that more Aussies are receiving these letters also says more about the ATO’s improved technology than the number of people doing the wrong thing, she added.
However, for taxpayers who disagree with the ATO’s concerns, there are some steps that can be taken.
“The evidence required by the ATO is quite standard. Assuming a taxpayer’s records are up to date, and they have access to their bank statements and employment records, it should be easy enough to gather,” Ms Russell said.
Problems with income related items
Responses to ATO concerns can be backed up by a PAYG statement summary, private health statement or bank statement, and deductions can be proven through receipts or supporting records like logbooks.
Once the ATO has the evidence, it will decide whether to alter the return and taxpayers will receive another notice of assessment if the office decides to follow through with the changes.
However, if the taxpayer can’t back up their income or deduction claim, the ATO will consider whether the taxpayer took reasonable care when completing their return when deciding on the penalty.
“There usually won’t be a penalty when an innocent mistake, such as entering an incorrect digit or forgetting the PAYG summary from a second job, has been made. However, if the mistake results in a larger tax refund than the taxpayer is entitled to, they’ll have to repay the surplus amount, and potentially interest too,” Ms Russell said.
“In situations where the ATO determines that the taxpayer did not take reasonable care, was reckless in completing their return, or intentionally disregarded tax rules, a penalty might be issued in addition to repaying any overpayment and interest.”