When it comes to tax time, it's increasingly hard to hide particularly when the Tax Office has arguably the most powerful computer system in the country at its disposal.

For Tax cheats, the objective has always been to try and hide sources of income. But harnessing that computer power means the Tax Office is now focussing on uncovering consumption in its battle against the cash economy.

Despite the introduction of the GST, the extent of the cash economy is still mind boggling and a source of frustration for those of us on traditional salary packages paying our proper amount of tax.

The Tax Office now matches consumption data (instead of just income) against tax returns of individuals. For example they look at people who have bought things like boats, racehorses, antiques and luxury cars.

They then check the tax returns of those people to see if they can “really” afford those items. As you can imagine it turns up some amazing results.

Would you believe, a couple of years ago, they found a quarter of all boat owners had outstanding tax returns.

We can’t believe the number of people who tell us they haven’t put in a tax return for a few years and ask what to do. Our advice is always to own up and complete them as quickly as possible. It is much better to tell the Tax Office about your mistake, and to rectify it, rather then them find you.

Many people mistakenly think that if they’re owed a refund then the Tax Office won’t mind if you’re a bit slack and don’t put in a tax return for a while.

Wrong. There have been a number of cases where the ATO has taken court action against people for not putting in returns even though they’ve earned a refund.

With the ATO’s “conspicuous consumption” program, the chances of you been caught will rise significantly.

Not only does the Taxman collect information from marine vessel registries but anyone who buys an expensive car will more than likely have their tax details checked. And by expensive we mean anything over $50,000.

Bottom line is the odds of getting a query from the tax office are shortening so make sure your affairs are in order.

Assessing the risk profile of your investments is a vital first step. We all know deep down when we’ve sailed close to the wind when it comes to tax advantaged investments and structures. Now is the time to check back with your advisers and accountants to make sure those investments haven’t been affected by any recent changes to tax rulings or policies. With such a vigilant tax audit program in place, it may be worth pulling back from any “sharp end” tax planning measures.

Record keeping is also critical. Under our tax laws you are assumed to be guilty until you prove your own innocence. The ATO wins 90 per cent of cases purely on record keeping. In other words, the taxman wins 90 per cent of cases purely on the fact the taxpayer doesn’t have the appropriate records to substantiate their positions… the argument doesn’t even get to the tax issues being contested.

So meticulous record keeping is essential. No shoe boxes, just plenty of records, receipts and spreadsheets.

Your relationship with the Tax Office is also important. They have a job to do and enormous powers. So be professional, co-operative and work through any issues civilly. There is just no point in being argumentative or angry. You are in a no-win situation by being objectionable.

Just remember the advice you give your kids about not arguing with the ref at the footy because it won’t change the decision.

So apart from declaring a modest income but buying a flash car or boat, what will cause the taxman to take a close interest in you? They have an interesting focus at the moment;

. work-related expenses. An old chestnut where we try and claim even the most obscure expense. The ATO has issued a series of industry booklets on the types of work related expenses than can be claimed. Check yours against their list… any deviation will attract attention.

. capital gains tax. How it’s worked out, the costs claimed and any offsetting capital losses.

. tax losses from prior years.

. rental property. With so many Australians borrowing against the equity in their home to buy a rental property, this is a complex area with which you must be familiar. Our advice is to get some professional help as the Tax Office is putting a lot of resources in to this area.

. interest and dividend deductions.

. foreign sourced income from overseas investments or remuneration.

. losses from partnerships.