ATO Tax audits
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.
- Be upfront about your mistakes. The ATO review will typically have a point where you can show your mistakes and your riskier positions.
Consider this moment in time well. It can result in a significant reduction in penalties.
- Meet your deadlines. Tell the ATO straight away if the ATO gives you a timeframe that you cannot meet (you have a wedding coming up or something). Do not wait for the deadline to sail past and then start to ask for an extension.
- Answer the questions. If you are requested for something, provide it and do so clearly – do not rant about something not related to or beyond the scope of the audit.
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:
- Every tax return is attached with an advice letter that discusses the tax position taken in depth.
- If you have asked us not to consider a tax position, we will document that – we don’t let you know that our scope was narrow after the event.
- Our position of tax leadership within the profession and within the Tax Institute provides that we are at the leading edge of understanding the ATO administrative approach and attitude on positions of tax law.
- Our gold partner status with CCH IKnow means that our tax library is one of the most extensive and well researched.
- Our partnering with Business Fitness means that our well documented internal work papers will fully consider a tax position for a complex matter.
- Our representative status as the Western Australian branch of the GGI Global Alliance Network gives us access to a massive range of tax practitioners for international transactions that cover multiple countries.
Other Tax Law Advisory Services
Tax return preparation
Tax structuring
International taxation
Tax planning and strategy
Goods and services tax
Capital gains tax
Fringe benefits tax
Land tax
Payroll tax
Super guarantee levy
ATO tax audits
Private company loans
Tax forecasting
Transfer duty
Withholding tax
