The moment when the Australian Tax Office undertakes an audit is a moment of reckoning for many small to medium-sized businesses. It is also a time when many clients approach our business for guidance on how to handle the situation (or fix the process).
If the ATO has commenced an audit, it is too late to start it. Modern tax law requires that current ongoing documentation be kept as transactions occur, and tax advice is no longer a “one-year hindsight affair”. Further, a tax audit (compared to a tax review) is a significant event with a much higher penalty regime.
So, for many SMEs, a tax audit is just part of the ATO tax compliance regime. It is normal for the ATO to ask direct questions to a taxpayer, and if these are responded to quickly, then the matter is completed. A common example is the main residence exemption where your address is located elsewhere – an excellent and legitimate position with a perfectly understandable question for the ATO.
Many high net wealth families are currently engaging with the ATO on their Next 5,000 program – which is effectively a review of how focused families are on managing their personal tax affairs and the quality of the tax advisor helping the client. And these programs will now likely be an ongoing, regular part of the ATO audit process for those families.
However, the ATO review has a few clear takeaways for a tax advisor.
Consider this moment in time well. It can result in a significant reduction in penalties.
Importantly you should keep a copy of all your written tax advice in one secure location. At Westcourt, we file all of our written correspondence on our client portal – so even if you have lost it, you know you can get it quickly.
And if a topic is not documented in writing, you don’t have advice on it. Internal file meeting notes, abstract emails and the returns typically mean that final advice was not provided.
At Westcourt, we perform well with ATO audits because: