Objections

The Australian Taxation Office (ATO) does routine reviews and audits on all tax returns.

You are able to challenge the audit decision through an objection process. There are two broad kinds of audits and both require a high level of tax knowledge and skill to successfully challenge the audit decision.

During an ATO Audit, by far the most common disallowed items are work related expenses. These disallowed decisions can be easily challenged if all the proper documentations can be substainated. Gathering and compiling all required documentation is usually a troublesome process.

The information and document gathering process becomes much easier with the help of an experienced tax accountant to advise you on the rules and requirements of substantiation. Having a tax accountant look through your documentations would also greatly improve your chances of your objection being successful.

Not all audits involve the disallowance of deduction items. Some audits are caused by third party information which is available to the ATO.

All tax returns are reviewed through the ATO’s third party data matching system which are fed by information provided to them by third parties.

Examples of third parties which supply the ATO information are:
1) Banks (Detection of undeclared interest)

2) Listed companies (Detection of undeclared dividend, capital gain and business income (most common sources are eBay and PayPal))

3) Managed funds (Detection of undeclared dividend, distributions, capital gains and Interest income)

4) Foreign governments (Detection of any sort of income derived from overseas)

5) Information from informants (Detection of undeclared business income)

Information from your tax return is matched to third party provided information. Usually a discrepancy will result in your return being adjusted for the adversely. These third information sources may not be entirely accurate nor reflect actual circumstances.

Let us take a few case studies:

1) You are holding money in your personal bank account. You are, however, holding this money in trust for your invalid relative to use for the benefit of your invalid relative’s upkeep. The ATO assesses you on the interest as your assessable income.

2) You are a returning expat from a low tax jurisdiction. The ATO decides that you are an Australian resident for taxation purposes and accesses your exempt foreign income you received while overseas as assessable income.

3) You have had an unfortunate accident at work. You have been successful in a compensation claim against your employer. You have been awarded a lump sum amalgamated amount that does not distinguish between amounts paid in compensation for the loss of your earning capacity and the loss of future wages. The ATO treats the lump sum as loss of future wages and assesses it as assessable income.

4) You have just set up a small business. The business is making a loss and you are in trouble. You turn to relatives for financial support. An overseas relative agrees to fund you over a limited time while your business is setting up. Your relative provides you funds to cover your day to day personal expenses and ongoing business expenses. Your overseas relative transfers you certain amounts at regular intervals throughout the financial year. The ATO views this inflow of money from overseas as income and treats it as your assessable income.

All the above scenarios are based on real life situations from people who, just like you, experienced the joy of the ATO Audit process first hand. All of their objections were successful because both in law and in fact all amounts should not have been considered assessable income.

After an adverse decision is made, your Notice of Assessment will be amended to reflect those changes. This will usually result in a shortfall penalty and in some instances shortfall interest charges being levied against you. The penalties range from 25% to 95% depending on your assessed level of wrongdoing.

You are able to challenge both the amended changes and/or the penalties and interest charges together or separately in an objection.

If you have been the subject of an ATO Audit or review and had an adverse decision applied to you, please contact us for a free first consultation and we will discuss at length about your options to object to that decision.