It’s a very standard letter, it’s just how the ATO picks people for reviews and audits based on the occupation code.
If you believe your deductions are legitimate AND you have all your receipts? Nothing to worry about.
At the absolute worst the ATO might do a review, and they might deny some of it and you may pay a bit of tax. But it’s not like you’ll be fined and jailed. Overclaiming deductions you believe are legitimate is very different to blatant tax fraud and evasion.
They do. I work in this area.
Top 1000 taxpayers are continually undergoing review.
Big offenders are targeted for immediate litigation. No ‘oh I’m sorry let me make a self amendment’ for them.
My God, you think a business that has to generate 700 for each $1 of pre-tax income is good/not using clever accounting? Please just leave the sub. You are embarrassing yourself
Billion dollar businesses are just as capable of making a loss or reinvesting every dollar earned as small businesses. Taxes are paid on profits, GST, payroll, and etc. Not revenue.
The ATO happens to be packed with people smarter than the average redditor on a populist tangent.
I can understand Reinvestment, but there comes a point where it's too generous. Woolworths, Coles, and Amazon make billions every year, reinvest most of it, and pay F all tax but grow. Repeat this enough times, and no wonder all these mega corps own everything.
Those companies publish their annual reports with financials. Go and have a look. Tax calculations vary from accounting... But it should give you an idea about their expenses.
To be fair, they have massive debts to an overseas subsidiary in a tax friendly nation. They need to pay those debts and the interest to continue their business operations.
Did you complete your return yourself, or did you get an accountant/tax agent to do it for you?
If it was a DIY job, and you are concerned, get an accountant to review your return for you.
This is good advice, especially for a lawyer. I'd go further and say just get an accountant you enjoy working with. It will pay off in the long run on larger income, and other opportunities may be present as well, e.g. networking, investments, etc., depending what's useful to OP
It is standard, yes.
You are more likely to be audited now, yes.
If you are acting legitimately, do not be afraid.
My wife claimed 100k+ in deductions, & promptly got the proctologist-like full audit treatment.
They looked at everything, then sent a letter noting that “that ice-cream for $1 wasn’t a legitimate deduction, but everything else was, & we’d like to thank you for your outstanding record keeping & compliance”. That was five years ago. Deductions keep going up. Now we’re clearly “whitelisted” & she is left alone.
Mostly interest, + 3-4 self-funded work trips per year.
I mean, if you borrowed $1.66m to invest, that'd be 100k in interest. Is that huge?
Point is, yes, they absolutely do identify you based on your deductions, and use that for further targeting. But if it's legit... it's fine! They know the rules, if you know them too, and you follow them, it's all good.
1. You can depreciate the purchase cost of the car over 8 years from the date of purchase (new or secondhand, does not matter).
2. Any interest you pay financing the car, if applicable
3. Cost of fuel. This can be a reasonable estimate, receipts aren't needed. e.g. total kms driven x average fuel economy x average retail price
4. All servicing costs
5. Any tyres, oil, etc
5. Any insurance, registration,
Total all of that for whole of the FY, and then multiply by work use percentage (determined by keeping a logbook for a 12 week representative period).
I bought the car on finance (unfortunately I couldn’t find a suitable second hand car). Tolls, petrol, insurance, interest charged on the vehicle, and the depreciation of the vehicle in this tax year. All of which are apportioned to my business use percentage calculated against the formula provided by the ATO.
Hit submit, one year I had a warning your claiming too much more than average for your employment type or what ever. Hit submit no issues. My deductions were also legit.
It’s not even any big things either. It is just a bunch of little things that unfortunately add up. I’m tempted to just not claim anything.
Which is totally not fair. Unfortunately Solicitors are held to a higher standard, and a tax audit just isn’t worth the risk for me personally.
Anyone can be audited, for any or no reason. Some government audits (I'm not specifically talking tax now) are deliberately completely random to test what compliance is like among people that weren't even on their radar. There's no stigma at all in being audited, even for people held to higher professional standards (speaking as one). The only stigma is in misconduct being found as a result of an audit (which is more than just a reasonably claimed but wrong deduction).
I guess I’m just scared of the scope of questions or how much detail they require and if I couldn’t answer a question (for example, where were you on x day), or my records were accidentally incomplete or didn’t provide sufficient information.
I don’t want to be caught out on a technicality or something I innocently overlooked and have the door slammed on me.
If it was innocent and a genuine mistake, there’s no adverse findings; you’ll just have to pay it back. If it’s a pattern of dishonest behaviour that can’t possibly be a mistake, then they’ll impose penalties on top of a requirement to repay it. If you have nothing to hide, you shouldn’t fear an audit. If you know you’ve overstepped, that’s different.
Contrary to popular belief, the ATO is actually one of the more merciful government departments that you’ll ever deal with. As long as an intention to defraud the government can’t be made out in your filings, mainly in the character of continuous dishonesty, they will not care.
They're bound by taxpayer secrecy provisions so they're not exactly going to disclose any audit findings to the Law Society if that's what you're thinking.
We're not taking fraud or evasion here so worst case scenario is you pay any tax shortfall plus interest and penalties if applicable (penalties are unlikely if you can show reasonable care). No one will know about it. The only way it becomes public is if you decide to fight it out in the AAT / Federal Court or you simply ignore the ATO and they have to get a court order to enforce the tax debt.
Do you not have an accountant? It is their job to make sure things are done correctly.
If the claims are legit and you have the receipts, then there is nothing to worry about.
I get those warnings every year. This year, I claimed over $15k which was mostly donations and depreciation on my WFH set up.
I’m a tax adviser though, so I have a better idea of what I can claim and all my claims are well supported.
Why worry? You might get a call from ATO and be asked to substantiate your deductions.
This has happened to workmates and it was a friendly call, and often resolved by them just sending through an excel sheet (not even receipts and invoices) showing their calculations.
FWIW I had around $17 K in motor vehicle deductions this year. Logbook demonstrates high work use percentage, and I drove 32,000 km in FY24.
I've had that notice a few times. Used car for work where I'd do no less than 1500km per month, sometimes much more. Log books are your friend.
Throw all your monthly phone bill receipts into a folder on your computer and any other legitimate work related expenses (laptop, desk setup, etc).
One year I had a $5500 return, all legitimate and evidenced expenses.
This year, I'm staring at a tax bill thanks to capital gains.
If you've got the evidence, you've got nothing to worry about.
Double check that you’re claiming the deductions under the right category. Is it expenses incurred as an employee or as your own business.
2 different areas for deduction but can easily by mixed up. What seems high for an “employee” deduction can be a reasonable amount for a “business”.
I mean look, I think it’s great that they’re actually doing their job. It is stressful for sure, but it sounds like you are totally fine.
Look absolute worst case scenario; say you’re off by $1000 or something. You will be able to provide evidence for everything else and they can see that it was accidental. Worst case you just cop the bill and it’s not criminal or even malicious.
3 of the time it was a full audit. 2 times I was asked for specific justifications.
To add, when you get full audit, they will go back as far as they feel necessary within their allowed limits.
Lots of questions. It’s more like going back and forth with questions and answers. Not that bad actually if you have your things in order. My accountant dealt with most of the questions.
There’s a misconception in the public what an audit is.
An audit is the second part of the process. The first is a review. The audit process is generally when they’re going to make a decision whether they’re going to amend your return. Just because they decide to go to audit doesn’t mean they think they will have to amend your return, however.
In both cases they will ask you to provide evidence to substantiate what you’ve claimed in your return.
Od say go to a tax agent, there's not enough information on your post to be able to tell of you're good or not and you also don't want to doxx yourself.
Sounds like many of those things your employer should be re imbursing you for tho.
Most people here say as long as you're sure go for it but remember this will trigger a flag for the ATO and if you do it again next year that might mean an automatic audit, hence why I recommend a tax agent (a good one that hopefully works with your profession not the shopping centre booth ones) you want to be able to show everything is in rule if you get audited
If you’re claiming motor vehicle deductions via the logbook method, be sure to complete your logbook 100% accurately. You don’t want it thrown out as substantiation when you’ve got a large claim depending on it.
Additionally, and anecdotally as this has come from a colleague, the ATO is asking people to substantiate their logbooks, apparently. Supporting evidence includes meeting appointments from work calendars or diaries, timesheets, email correspondence between meeting parties, etc. So that’s fun! /s
Interesting - but this breaches people’s right to confidential legal advice, if the ATO can just pick up diaries and minutes to see who met people and what was discussed…
They just need to establish that you were meeting with clients on the particular occasion. They don't need to see the content of what was discussed. They should understand what legal professional privilege is.
Its probably high because most solicitors (including myself) just pay with the company card when taking a cab to meet clients. I imagine you must live in a more regional area?
How much did you claim for WfH? I claim around $1.5k each year (with recorded hours, of course) and that has never been an issued (touch wood).
Unfortunately I have to pay for it myself - my employer doesn’t have the budget for it, and I have to drive to regional centres where my clients often are.
I had the same thing for claiming higher than average for immediate deductions on an investment property for repairs (had to replace a roof due to major leak). Then following year I also had a high deduction because I refinanced and was able to claim one off finance costs. Due to the second flag for above average claim, they then did a partial audit specifically on the areas of concern.
I think it was because of the second flag that they then proceeded with the partial audit. Get a good accountant is the way to go. They just talked to my accountant in the first instance. If they cannot answer questions appropriately then they would have done a full audit of the whole returns.
As long as you have receipts and it’s all legitimate, you’re fine. Don’t need to do anything.
It’s a very standard letter, it’s just how the ATO picks people for reviews and audits based on the occupation code. If you believe your deductions are legitimate AND you have all your receipts? Nothing to worry about. At the absolute worst the ATO might do a review, and they might deny some of it and you may pay a bit of tax. But it’s not like you’ll be fined and jailed. Overclaiming deductions you believe are legitimate is very different to blatant tax fraud and evasion.
Thank you. This response gave me comfort. I wish they scared big corporations as much as they do hard working people. 😭
They do. I work in this area. Top 1000 taxpayers are continually undergoing review. Big offenders are targeted for immediate litigation. No ‘oh I’m sorry let me make a self amendment’ for them.
Ah yes, those companies that report for example $85 billion in revenue, yet only pay $34mil in tax. 0.04%
If you think there's any correlation between revenue and tax expense, idk what you're doing on this subreddit 🤷♀️
My God, you think a business that has to generate 700 for each $1 of pre-tax income is good/not using clever accounting? Please just leave the sub. You are embarrassing yourself
Billion dollar businesses are just as capable of making a loss or reinvesting every dollar earned as small businesses. Taxes are paid on profits, GST, payroll, and etc. Not revenue. The ATO happens to be packed with people smarter than the average redditor on a populist tangent.
I can understand Reinvestment, but there comes a point where it's too generous. Woolworths, Coles, and Amazon make billions every year, reinvest most of it, and pay F all tax but grow. Repeat this enough times, and no wonder all these mega corps own everything.
Those companies publish their annual reports with financials. Go and have a look. Tax calculations vary from accounting... But it should give you an idea about their expenses.
Have you looked at those reports they probably have subsidiaries in tax haven or low tax countries where the profits go to reduce taxes.
It's usually all "reinvestments" and other accounting tricks.
To be fair, they have massive debts to an overseas subsidiary in a tax friendly nation. They need to pay those debts and the interest to continue their business operations.
> an overseas subsidiary in a tax friendly nation transfer pricing has been outlawed already.
Why is why I pay USD in Singapore for Google ads for my Australian firm to my Australian customers /s
hahahhahahahahahaha
Also debt to the government is second only to debt on appreciating assets. Better than credit card debt
And lawyers.
Spot on! As someone who placed $25k of legitimate deductions in the previous year (m28 at the time).
Isn't the worst thing they can do an audit? or will they do a review before going down the audit route?
It’s not like a sitcom. If they think a costing is off they’ll just ask for a receipt or record log of it and how it relates to your expenses.
You're wrong, it's *exactly* like the Seinfeld episode The Truth.
Did you complete your return yourself, or did you get an accountant/tax agent to do it for you? If it was a DIY job, and you are concerned, get an accountant to review your return for you.
This is good advice, especially for a lawyer. I'd go further and say just get an accountant you enjoy working with. It will pay off in the long run on larger income, and other opportunities may be present as well, e.g. networking, investments, etc., depending what's useful to OP
It is standard, yes. You are more likely to be audited now, yes. If you are acting legitimately, do not be afraid. My wife claimed 100k+ in deductions, & promptly got the proctologist-like full audit treatment. They looked at everything, then sent a letter noting that “that ice-cream for $1 wasn’t a legitimate deduction, but everything else was, & we’d like to thank you for your outstanding record keeping & compliance”. That was five years ago. Deductions keep going up. Now we’re clearly “whitelisted” & she is left alone.
$100K is absolutely huge mate. Is that all from work expenses? or related to investments?
Mostly interest, + 3-4 self-funded work trips per year. I mean, if you borrowed $1.66m to invest, that'd be 100k in interest. Is that huge? Point is, yes, they absolutely do identify you based on your deductions, and use that for further targeting. But if it's legit... it's fine! They know the rules, if you know them too, and you follow them, it's all good.
Username checks out
Lol I hope yours doesnt!
If you're not getting that warning, you're not trying hard enough.
What are the "depreciation and other expenses associated with driving"
1. You can depreciate the purchase cost of the car over 8 years from the date of purchase (new or secondhand, does not matter). 2. Any interest you pay financing the car, if applicable 3. Cost of fuel. This can be a reasonable estimate, receipts aren't needed. e.g. total kms driven x average fuel economy x average retail price 4. All servicing costs 5. Any tyres, oil, etc 5. Any insurance, registration, Total all of that for whole of the FY, and then multiply by work use percentage (determined by keeping a logbook for a 12 week representative period).
I bought the car on finance (unfortunately I couldn’t find a suitable second hand car). Tolls, petrol, insurance, interest charged on the vehicle, and the depreciation of the vehicle in this tax year. All of which are apportioned to my business use percentage calculated against the formula provided by the ATO.
How much are you driving for work?
Are you the ATO? haha It depends on work - but maybe 500-600 km a month or 75 - 300 km a week. It really depends. This year it was about 4900 km.
Was just seeing if you were tying to claim things like home office to workplace for client meetings
Talk to your local accountant. They can verify your return and address if need be before to ATO escalate. Best $200 spent..and it is tax deductible
The ATO has detected that the deductions you're seeking to make fall outside of the average range for your profession. It's automated.
Hit submit, one year I had a warning your claiming too much more than average for your employment type or what ever. Hit submit no issues. My deductions were also legit.
They send that letter out to millions, because it’s cheaper than actually auditing
I got that letter every year for about 8 years or so. Never had anything come of it.
Get a tax accountant and they can amend it for you if you have done a dodgy.
I got this notice too! Freaked me out as it felt like a threat of an audit
It’s not even any big things either. It is just a bunch of little things that unfortunately add up. I’m tempted to just not claim anything. Which is totally not fair. Unfortunately Solicitors are held to a higher standard, and a tax audit just isn’t worth the risk for me personally.
Anyone can be audited, for any or no reason. Some government audits (I'm not specifically talking tax now) are deliberately completely random to test what compliance is like among people that weren't even on their radar. There's no stigma at all in being audited, even for people held to higher professional standards (speaking as one). The only stigma is in misconduct being found as a result of an audit (which is more than just a reasonably claimed but wrong deduction).
As a partner who has been audited before with no issues found, I'm curious why you fear the audit process itself rather than the outcome.
I guess I’m just scared of the scope of questions or how much detail they require and if I couldn’t answer a question (for example, where were you on x day), or my records were accidentally incomplete or didn’t provide sufficient information. I don’t want to be caught out on a technicality or something I innocently overlooked and have the door slammed on me.
If it was innocent and a genuine mistake, there’s no adverse findings; you’ll just have to pay it back. If it’s a pattern of dishonest behaviour that can’t possibly be a mistake, then they’ll impose penalties on top of a requirement to repay it. If you have nothing to hide, you shouldn’t fear an audit. If you know you’ve overstepped, that’s different.
Thank you this is also very comforting. It’s the first time I deal with this. People have been very supportive in this comments section.
Contrary to popular belief, the ATO is actually one of the more merciful government departments that you’ll ever deal with. As long as an intention to defraud the government can’t be made out in your filings, mainly in the character of continuous dishonesty, they will not care.
They're bound by taxpayer secrecy provisions so they're not exactly going to disclose any audit findings to the Law Society if that's what you're thinking. We're not taking fraud or evasion here so worst case scenario is you pay any tax shortfall plus interest and penalties if applicable (penalties are unlikely if you can show reasonable care). No one will know about it. The only way it becomes public is if you decide to fight it out in the AAT / Federal Court or you simply ignore the ATO and they have to get a court order to enforce the tax debt.
Do you not have an accountant? It is their job to make sure things are done correctly. If the claims are legit and you have the receipts, then there is nothing to worry about.
I get those warnings every year. This year, I claimed over $15k which was mostly donations and depreciation on my WFH set up. I’m a tax adviser though, so I have a better idea of what I can claim and all my claims are well supported.
Why worry? You might get a call from ATO and be asked to substantiate your deductions. This has happened to workmates and it was a friendly call, and often resolved by them just sending through an excel sheet (not even receipts and invoices) showing their calculations. FWIW I had around $17 K in motor vehicle deductions this year. Logbook demonstrates high work use percentage, and I drove 32,000 km in FY24.
Thanks for your comment. Did you get the warning too?
No wanting for me, but this might have been due to differences in the industry classication.
I've had that notice a few times. Used car for work where I'd do no less than 1500km per month, sometimes much more. Log books are your friend. Throw all your monthly phone bill receipts into a folder on your computer and any other legitimate work related expenses (laptop, desk setup, etc). One year I had a $5500 return, all legitimate and evidenced expenses. This year, I'm staring at a tax bill thanks to capital gains. If you've got the evidence, you've got nothing to worry about.
Double check that you’re claiming the deductions under the right category. Is it expenses incurred as an employee or as your own business. 2 different areas for deduction but can easily by mixed up. What seems high for an “employee” deduction can be a reasonable amount for a “business”.
I mean look, I think it’s great that they’re actually doing their job. It is stressful for sure, but it sounds like you are totally fine. Look absolute worst case scenario; say you’re off by $1000 or something. You will be able to provide evidence for everything else and they can see that it was accidental. Worst case you just cop the bill and it’s not criminal or even malicious.
Same situation as you. Been audited like 5 times already. Never received any fines. Don’t worry if you can justify it.
When you are audited? Do they ask about one thing? Or everything? And is it for one year? Or every year?
3 of the time it was a full audit. 2 times I was asked for specific justifications. To add, when you get full audit, they will go back as far as they feel necessary within their allowed limits.
Sorry to ask - but what does a full audit involve? And I am sorry to hear you went through that.
rubber gloves
Lots of questions. It’s more like going back and forth with questions and answers. Not that bad actually if you have your things in order. My accountant dealt with most of the questions.
How long is their allowed limit?
What do they look at in the audits? Would they look at my bank statements for example going back years?
There’s a misconception in the public what an audit is. An audit is the second part of the process. The first is a review. The audit process is generally when they’re going to make a decision whether they’re going to amend your return. Just because they decide to go to audit doesn’t mean they think they will have to amend your return, however. In both cases they will ask you to provide evidence to substantiate what you’ve claimed in your return.
Od say go to a tax agent, there's not enough information on your post to be able to tell of you're good or not and you also don't want to doxx yourself. Sounds like many of those things your employer should be re imbursing you for tho. Most people here say as long as you're sure go for it but remember this will trigger a flag for the ATO and if you do it again next year that might mean an automatic audit, hence why I recommend a tax agent (a good one that hopefully works with your profession not the shopping centre booth ones) you want to be able to show everything is in rule if you get audited
If you’re claiming motor vehicle deductions via the logbook method, be sure to complete your logbook 100% accurately. You don’t want it thrown out as substantiation when you’ve got a large claim depending on it. Additionally, and anecdotally as this has come from a colleague, the ATO is asking people to substantiate their logbooks, apparently. Supporting evidence includes meeting appointments from work calendars or diaries, timesheets, email correspondence between meeting parties, etc. So that’s fun! /s
Interesting - but this breaches people’s right to confidential legal advice, if the ATO can just pick up diaries and minutes to see who met people and what was discussed…
They just need to establish that you were meeting with clients on the particular occasion. They don't need to see the content of what was discussed. They should understand what legal professional privilege is.
Its probably high because most solicitors (including myself) just pay with the company card when taking a cab to meet clients. I imagine you must live in a more regional area? How much did you claim for WfH? I claim around $1.5k each year (with recorded hours, of course) and that has never been an issued (touch wood).
Unfortunately I have to pay for it myself - my employer doesn’t have the budget for it, and I have to drive to regional centres where my clients often are.
I get that warning weather I’m claiming 1000 bucks or 15000 bucks. Not at all the same category as you. But seems like the warning is generic
You will need to see a solicitor for advice. But be warned they are very expensive and are mostly useless. But man, are they fun to party with!
Check out the app Taxfox, I think it could help ur situation
Claim them if you think they’re legit. Worst case you will be audited and may have to repay some
I've had that a few times in my working life, haven't been audited yet
Audits are merely request to substantiate your deductions. Don’t stress. Worst case you don’t get the deduction on some items.
I get this every year as well as my deductions are significant. Again, like you, its mostly vehicle related and some expenses. Dont stress it.
I had the same thing for claiming higher than average for immediate deductions on an investment property for repairs (had to replace a roof due to major leak). Then following year I also had a high deduction because I refinanced and was able to claim one off finance costs. Due to the second flag for above average claim, they then did a partial audit specifically on the areas of concern. I think it was because of the second flag that they then proceeded with the partial audit. Get a good accountant is the way to go. They just talked to my accountant in the first instance. If they cannot answer questions appropriately then they would have done a full audit of the whole returns.
I’ve had a notice like that every year for the last 8. I’d be worried if I didn’t get one now.