When it comes to the ATO, people think they can get away with it. Over the years, I think I have pretty much heard almost every conceivable trick to try to get a tax deduction.

I always say this when it comes to taxes. Be reasonable. If you act reasonably, then the ATO will act reasonably. Take advantage, and the ATO gets a little upset. Treat them as if they are Stupid, and they really get pissed off.

And to be honest, it does make sense. Just think about it. How much respect are you going to have for person A if person A thinks you’re stupid? See what I mean? You want to smash their lights out.

Now, the ATO don’t smash the lights out of people, but they do the next best thing. They hit them in the wallet.

And then they become unreasonable.

So, what am I talking about?

Well, a recent tribunal shows that being without the proper structure of your taxes and poor organisation will cost you a crapload in extra taxes.

A real estate agent was the managing director of a real estate agency. He was also the director and 50 per cent shareholder of a company, Copley & Associates Pty Ltd.

He claimed tax deductions for the income years ended 30 June 2018, 30 June 2019 and 30 June 2020 of $28,773, $26,359 & $24,253, respectively, in his personal income tax returns.

An audit was commenced for the 2020 year, and the ATO asked for supporting information, which was not provided. As no supporting information was provided, the ATO disallowed the expenses in that year but then also disallowed expenses for 2018 & 2019, resulting in large payments of taxes.

The real estate agent objected and added additional claims as deductions, increasing the deductions to $42,682, $41,893 and $44,682 for the 2018, 2019 and 2020 years, respectively.

And that was probably the stupid part. If you cannot substantiate claims, the last thing you do is increase your claims. And that is what probably pissed off the ATO. Here is what happened.

• Motor Expenses

It appeared claims were made for a motor vehicle. The problem? The car was owned by Copely and Associates, not him. If he did not own the car, the agent could not claim deductions in his name, even if he paid for them personally or even if they were for work-related purposes. This is why we always say to clients to make payments from the correct entities or bank accounts.

• Donations

The ATO also disallowed gifts and donations even though it seemed obvious what the expenses were. As no receipts were provided for donations, the agent provided credit card receipts and bank statements. One stated ‘Telethon’, and the other ‘Movember’, but the ATO claimed that without receipts, the claim could be rejected. The tribunal agreed with the ATO.

• Interest claims

The agent claimed interest on seven credit cards as a tax deduction.

While he produced credit card statements showing the opening balance of the credit cards at the start of the financial year, there was no evidence to show what the balance comprised.

It was impossible to identify if the expenses were personal, for work or whether they were partly personal and partly for work.

The above is an example of how not to make deductions and to ensure you make claims correctly and in the right entities. And please don’t think the ATO are stupid. They are anything but ….. and the last thing you want is for the ATO to think that you think they are stupid. It could be a costly mistake to make.

Reducing and paying the least in taxes is step 2 of our 9 steps to working less, earning more and creating more wealth. If you would like to know more, contact Hitesh at hitesh@wowadvisors.com.au or Ros at ros@wowadvisors.com.au or call 07 3161 9548.