Income Tax Issues

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Sources of income

There are a range of issues which commonly arise under Australian taxation laws for taxpayers with the following sources of income:

  1. distributions from trusts, even where moneys are not paid to beneficiaries;

  2. personal services income;

  3. deemed dividends from Division 7A loans arising from loans from companies;

  4. capital gains and losses from trading in shares, derivatives, or a cryptocurrency (eg. Bitcoin);

  5. moneys from foreign sources being loans or gifts without written evidence of the loans or gifts;

  6. income from crowdfunding from sources including the internet and mail-order subscriptions;

  7. undeclared foreign sourced income such as dividends, capital gains and interest;

  8. income derived as a trustee without proper documentation of a trust arrangement;

  9. employee share schemes; and

  10. income arising from an investment in a Controlled Foreign Company.

All taxpayers need to maintain records which explain all their sources of income.

Allowable deductions

The Australian Taxation Office may scrutinise deductions which are claimed, including:

  1. interest, dividend and investment income related deductions for share portfolios and rental properties;

  2. expenses partially or wholly for a private, or domestic purpose;

  3. non-commercial business losses;

  4. expenses related to hobbies;

  5. self education & work related travel; and

  6. claims for deductions where proper records have not been maintained.

ATO reviews and audits

The Australian Taxation Office may conduct a review or audit of your tax affairs in relation to your declared income and claimed deductions. During that review or audit:

  1. you may be requested to provide additional information and documents;

  2. you may need to consider whether you want to voluntarily disclose undeclared income or wrongly claimed deductions; and

  3. the ATO may collect information from third parties including your bank, suppliers and customers.

If the ATO is not satisfied that you have correctly declared all your sources of income or that you are not entitled to certain deductions, the ATO can issue you with an amended assessment (or in some instances a default assessment) and a penalty notice. Penalties of between 25% and 95% of the shortfall tax can apply, depending on the circumstances.

Time limits are imposed on the ATO to amend income tax assessments, however, the ATO have an unlimited time if they are satisfied that there has been an avoidance of tax because of fraud or evasion.

Objections to income tax assessments

You have a right to lodge an objection against any income tax assessment or amended assessment issued by the ATO, however, time limits apply. If you are not sure about your grounds for an objection, please contact us for assistance.

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