Tax Return Advanced Tips: Avoid ATO Audits

Expert strategies to maximize your refund while staying audit-proof. Learn what triggers ATO reviews and how to protect yourself.

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Important: This guide complements our Tax Return Basics Guide. Read that first if new to tax returns.

Common Mistakes That Trigger ATO Reviews

Top 10 Mistakes to Avoid

Claiming work clothes without logos - Regular business attire is NOT deductible
Overclaiming car expenses - Must keep a logbook
Claiming gym memberships - Only for fitness instructors and defense force
Not declaring cash income - Tradies and hospitality workers take note
Round number deductions - $500 or $1000 without receipts looks suspicious
Claiming 100% of phone and internet - Must calculate work portion only
Not declaring crypto gains - ATO has exchange data
Claiming private travel as work - Conferences and work trips must be genuine
Overclaiming work from home - Must have actual time records
Not declaring rental income - Including Airbnb and short-term lets

ATO Audit Red Flags

What Triggers an ATO Review?

High-Risk Areas for 2024-25:

Rental property losses - Especially negative gearing claims
Work expenses over $5,000 - Automatic review triggered
Crypto - Undeclared gains or unexplained deposits
Cash businesses - Hospitality, trades, beauty services
Sharing economy income - Uber, Airbnb, Airtasker
Inflated deductions - Claims higher than industry averages
Private company arrangements - Loans and benefits
Foreign income - Offshore accounts and foreign pensions

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Serious: The ATO uses data matching from banks, crypto exchanges, ride-share platforms, and international tax agencies.

How to Audit-Proof Your Return

Keep detailed records - Receipts, logbooks, diaries for 5 years
Only claim work portions - Not private use
Declare ALL income - Even cash payments
Be reasonable - Do not exaggerate claims
Use ATO guidance - Check occupation-specific guides
Get professional help - For complex situations

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Penalties: False claims can result in fines up to 75% of the tax shortfall, plus interest. Serious cases face prosecution.

Advanced Deduction Strategies

Work from Home Deductions

Fixed Rate Method (85c per hour):

What you need:

Timesheet or diary of hours worked from home
At least ONE receipt for each expense type (electricity, internet, etc.)

What is included in the 85c rate:

Electricity and gas
Internet
Phone
Stationery
Computer consumables

What is NOT included:

Occupancy expenses (rent, mortgage)
Equipment depreciation over $300
Coffee and tea

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Tip: Keep a simple spreadsheet. Record date, hours worked from home, and task performed. This is sufficient evidence.

Car Expense Deductions

Cents per km method (85c/km - max 5,000km):

You need:

Diary or logbook of work-related trips
Date, destination, purpose, kilometers

Common work trips:

Client meetings
Between work sites
Bank deposits for work
Purchasing work supplies

NOT deductible:

Home to regular work
Personal errands
Dropping kids at school

Rental Property Claims

What property investors often get wrong:

Can claim:

Loan interest (not principal)
Property manager fees
Council rates (if not owner-occupied)
Repairs (fixing existing items)
Depreciation (building and fittings)

Cannot claim:

Improvements (adding value)
Private use portion
Travel to inspect if overseas or interstate (limited)

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ATO Focus: Rental properties are scrutinized heavily. The ATO cross-checks rental income against land title records and real estate data.

FAQ - Advanced Questions

Can I claim my entire phone bill?

No. You can only claim the work-related portion.

How to calculate:

Review 4 weeks of calls and data
Calculate work percentage (e.g., 30%)
Apply to annual phone bills
Keep records of your calculation

Example: Phone bill $100/month, 30% work use = $30/month = $360/year deductible

What if I made a mistake on last year’s return?

You can amend returns from the previous 2 years using myTax:

Log into myGov
Go to Tax then Income tax
Select Amend return
Update incorrect information
Submit

For older returns (2+ years), contact the ATO or use a tax agent.

Will the ATO know if I do not declare cash income?

Very likely, yes. The ATO uses:

Data matching - Compares bank deposits to declared income
Industry benchmarks - Flags unusually low earnings
Third-party reports - Businesses report cash over $10,000
Lifestyle audits - Compares spending to income

Always declare ALL income. Penalties are severe (up to 75% plus prosecution).

Can I claim donations to charity?

Yes, if:

Organization is a Deductible Gift Recipient (DGR) - check ABN Lookup
You have a receipt (for donations over $2)
It was a genuine gift (not raffle tickets or membership fees)

Common deductible donations:

Red Cross, Cancer Council, WWF
University building funds
Public hospitals

NOT deductible:

GoFundMe campaigns
Sponsoring charity runs
School building funds (unless DGR-registered)

What happens if I get audited?

The ATO will:

Contact you - Letter or phone call
Request documents - Receipts, bank statements, logbooks
Review your claim - Compare to their data
Make a decision - Accept, amend, or issue penalty

Your rights:

Reasonable time to respond (usually 28 days)
Request extension if needed
Seek advice from a tax agent
Object if you disagree
Appeal to tribunal if necessary

Best response: Provide requested documents promptly, be honest, seek professional help if complex.

Should I use myTax or pay for a tax agent?

Use myTax if:

Simple PAYG income from employment
Basic deductions (work expenses under $5,000)
No investments, rental properties, or business income
Comfortable with online forms

Use a tax agent if:

Complex income (business, trust, partnership)
Rental properties or investments
Crypto assets or foreign income
Large deductions to maximize (over $10,000)
Want extended deadline (May 15)
Need audit support

Cost comparison:

myTax: FREE
Tax agent: $150-$500+ (but may save more through optimized deductions)

First Year in Australia

Temporary residents:

Cannot claim tax-free threshold if here less than 6 months
Different rates for foreign residents
May need to lodge in home country too
Check residency status with ATO

Foreign income:

Australian residents must declare worldwide income
May receive foreign income tax offset
Check tax treaties between countries

Key Takeaways

Lodge by October 31 (or May 15 with tax agent)
Use myTax for free, fast online lodgment
Only claim legitimate deductions with records
Declare ALL income - cash, crypto, side hustles
Keep records for 5 years
Get professional help for complex situations

Pro Tip: The best time to prepare for tax is throughout the year. Keep a folder (physical or digital) for all receipts and records as you go.

Tax Return Basics Guide - How to lodge with myTax
Small Business Tax Guide - Tax obligations for businesses
Centrelink Payment Rates - Government payment amounts
Cost of Living Support - Financial assistance programs

Last updated: October 2025 | Information based on current ATO guidelines. Tax laws change frequently - always verify on the ATO website or consult a registered tax agent.

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Tax Return Basics Overview