For tax cheats, the objective has always been to try to hide sources of income. But now a change in Tax Office strategy to focusing on uncovering consumption seems to be paying off in the 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 paying our proper amount of tax.

Recently the Tax Office established a pilot scheme to match consumption data (instead of just income) against tax returns of individuals. For example, they've looked at those people who have bought things like boats, racehorses, antiques and luxury cars. They've then checked the tax returns of those people to see if they can really afford those items. It has turned up some amazing results.

Would you believe the pilot scheme found a quarter of all boat owners had outstanding tax returns?

I must admit I can't believe the number of people who tell me they haven't put in a tax return for a few years and ask what to do. My 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 approach you.

Many people mistakenly think that if they're owed a refund 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 Tax Office set to roll out its "conspicuous consumption" program, the chances of you being caught will rise significantly.

Not only will the taxman collect information from marine vessel registries but anyone who bought a car valued above $57,009 between July 2005 and June 2007 will also have their tax details checked.

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 with your advisers and accountants to make sure those investments haven't been affected by changes to tax rulings or policies. With such a vigilant audit program in place, it may be worth pulling back from any "sharp end" tax planning measures.

The last Federal Budget had some changes in this area so make sure you're up to date.

Record-keeping is also critical. Under our tax laws, you are assumed to be guilty until you prove your own innocence. The Tax Office 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.

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.

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 to claim even the most obscure expense. The Tax Office has issued a series of industry booklets on the types of work-related expenses that 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 previous 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. My advice is to get some professional help because the Tax Office is putting a lot of resources in to this area;

* Interest and dividend deductions;

* Foreign-sourced income from investments or remuneration; and

* Losses from partnerships.