Latest Audit Danger Areas for Individuals

Welcome, to the Podcast! Our newsletter made easy! Please note, this podcast features AI-generated voices for your hosts, Mia Taylor and Leo Baker, bringing you expert insights from owner, Ben De Rosa, at Aevum Accounting. Each week, we're here to help you confidently navigate the ins and outs of Australian tax – whether it's for your individual finances, or the complexities of your business. We'll cut through the jargon to give you strategies for compliance, smart planning, and that ultimate peace of mind. So, if you're looking to understand your obligations, maximize your financial position, or simply gain clarity on your money matters, you're in the right place. Let's get started with our review of the week! Marianne says "Ben from Aevum took on my tax at short notice and did a speedy and efficient job. Really easy to deal with , clear with what was needed, and at a good price. We were recommended to him , in turn I would recommend him without hesitation!" Thank you for the amazing feedback Marianne we love hearing from our clients and a positive review gets our podcast started on the right foot. Over to you Leo. Alright everyone, welcome back! I’m Leo Baker. And I'm Mia Taylor. Today, we're tackling a topic that can make even the most seasoned taxpayer a little nervous: audit danger areas for individuals. Nobody wants that letter from the tax office, do they? Absolutely not, Mia! And it's not about being dishonest; it's often about genuine mistakes or simply not being aware of where the ATO is tightening its focus. The tax office is becoming incredibly sophisticated with its data matching, so understanding these common audit triggers is more important than ever. Exactly. Proactive knowledge is your best defence. So, let’s dive into some key areas the ATO is scrutinising for individual taxpayers. First up, a very common one: Car Expenses, particularly if you're using the Logbook Method. Ah, the logbook. Many people use this to claim a higher percentage of business use, but it's also a big red flag for the ATO if not done meticulously. We're seeing them really review these logbooks for compliance. That's right, Leo. The main issues the ATO pinpoints are often insufficient journey descriptions – so, not detailing why a trip was business-related – and incorrect calculations of the business use percentage. It's not enough to just write "client meeting"; you need to be specific: "Meeting with client J. Smith regarding Q2 project review at their Northbridge office." And consistency is key. Your logbook needs to genuinely reflect your usage over a continuous 12-week period, and if your circumstances change significantly, you might need a new one. Don't just set and forget! Moving onto a more complex area, and one that affects a growing number of Australians who might live or work overseas for a period: Foreign Residents and Capital Gains Tax, or CGT. This can be a minefield, Mia! For individuals who cease to be Australian residents for tax purposes, the CGT rules become incredibly complex, especially regarding assets they hold. That's absolutely true. One of the big ones is CGT Event I1, or what's called a 'deemed disposal.' Essentially, when you stop being an Australian resident, the ATO can treat certain assets you own (like shares or investment properties, but generally not your main residence at that time) as if you sold them for their market value the moment you ceased residency. This can trigger a capital gain or loss right then and there, even if you haven't actually sold the asset. It's a tricky one because people often don't realise this happens until much later. And related to this, the loss of the main residence exemption is another huge trap. If you move overseas and rent out your former main residence, you can often only continue to treat it as your main residence for CGT purposes for up to six years. But if you stop being an Australian resident, that exemption can be lost entirely for periods where you're a foreign resident, even within that six-year window. And finally, for foreign residents, there are complex rules around the apportionment of the 50% CGT discount. This discount, which many Australians rely on, often isn't fully available to foreign residents for assets acquired after a certain date. It’s why getting professional advice for any overseas move is absolutely non-negotiable. Alright, let's talk about something that affects everyone, both residents and those with unique circumstances: The Medicare Levy and Surcharge. This is a hot area for ATO data-matching, Leo. They're heavily verifying claims for Medicare levy exemptions. For instance, if you have private health insurance, you might be exempt from the Medicare Levy Surcharge, but if your income is above a certain threshold and you don't have eligible private health insurance, the surcharge kicks in. And the traps here are very specific. The notes detail issues especially for couples – sometimes only one person in a couple has appropriate private health cover, or if incomes combine, they hit the surcharge threshold. Another critical area is for prescribed persons like Defence Force members who might have specific exemptions but still need to ensure their income and health cover status are correctly reported to avoid unexpected charges. It’s about ensuring all the pieces fit together, exactly as the ATO expects. So, we’ve talked about these danger areas. But what happens if you do get that dreaded letter? How do you go about Managing an ATO Audit? This is where having a clear plan, or better yet, a trusted tax agent like Aevum Accounting, becomes invaluable. While our detailed checklist is more for agents, the principles apply to you too. Absolutely. First, initial contact is key. Don't panic, but don't ignore it. Respond promptly, even if it's just to acknowledge receipt and state you'll get back to them. Ignoring an ATO letter is always the worst possible strategy. Then, it's about information requests. The ATO will clearly outline what documents or explanations they need. Gather everything meticulously. This is where excellent record-keeping throughout the year, using tools like the ATO's myDeductions app or a shared cloud folder, pays dividends. Consider potential defences. If you believe your claim is correct, prepare your arguments and evidence clearly. Sometimes it's a misunderstanding or you have supporting documents they haven't seen yet. And if there's a disagreement, explore dispute resolution options, which could range from objections to more formal review processes. But honestly, for most individual taxpayers, if you receive an audit letter, your first call should be to a qualified tax agent. We specialize in navigating these processes, understanding the ATO's expectations, and advocating on your behalf. It provides peace of mind and significantly improves the outcome. Exactly. It brings us back to our core message: taking control of your financial life. Understanding these audit danger areas isn't about fear; it's about empowerment. It's about ensuring your claims are robust, your obligations are met, and your financial future is secure. And remember, proactive compliance and accurate record-keeping are your best friends in avoiding these pitfalls altogether. And that brings us to the end of another episode! We hope today's discussion has provided you with valuable insights and helps you navigate your financial world with greater confidence. Before we go, a quick but important reminder: The information and strategies shared on this podcast are for general informational purposes only and do not constitute specific tax or financial advice. Everyone's situation is unique, and tax laws are complex and constantly evolving. For personalized advice tailored to your specific individual or business needs, we always recommend consulting with a qualified professional. You can connect with our team at Aevum Accounting – visit our website to learn more about our services, including detailed tax guides for various occupations, and how we can support your financial journey. Thank you so much for tuning in! If you enjoyed this episode, please consider subscribing, leaving us a review, and sharing it with anyone who might benefit. Your support helps us reach more Australians. Until next time, stay savvy, stay proactive, and keep building your financial future! From all of us at Aevum Accounting, goodbye for now!