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 preparing documents that should have been done a long time ago. 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 correctly with the correct level of tax focus at the time, 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:
The Australian Taxation Office (ATO) may conduct an audit of a taxpayer’s affairs if it suspects that the taxpayer is not complying with their tax obligations or if the taxpayer has a history of non-compliance. Some of the most common triggers for an ATO audit review include:
It’s important to understand that the ATO has broad powers to audit taxpayers, and it’s a good idea to seek advice from a tax professional like Westcourt if you are concerned about an ATO audit. A tax professional can help you understand your rights and obligations during an ATO audit and represent you during the audit process.
If the Australian Taxation Office (ATO) decides to audit you, it will send you a letter advising you of the audit and requesting information and documentation to support your tax returns. The purpose of the audit is to determine if you have accurately reported your income, claimed the correct deductions, and paid the correct amount of tax.
During the audit, the ATO may ask you to provide a variety of information and documentation, including bank statements, receipts, invoices, and other records. The ATO may also visit your place of business or request that you attend a meeting to discuss the audit.
If the ATO finds that you have underpaid your tax, you will be required to pay the additional tax, interest, and any applicable penalties. If the ATO finds that you have overpaid your tax, you may be entitled to a tax refund.
It’s important to understand that the ATO has broad powers to audit taxpayers, and it’s a good idea to seek advice from a tax professional if you are concerned about an ATO audit. The best time to manage a tax audit is before the tax audit starts. A tax professional like Westcourt can help you understand your rights and obligations during an ATO audit and represent you during the audit process. They can also help you negotiate a resolution with the ATO if necessary.
There is no guaranteed way to avoid an Australian Taxation Office (ATO) audit, as the ATO may choose to audit a taxpayer for a variety of reasons. However, you can reduce your risk of being audited by the ATO by following these tips:
By following these tips, you can reduce your risk of being audited by the ATO and ensure that you are in compliance with the tax laws. However, it’s important to understand that the ATO has broad powers to audit taxpayers, and it’s a good idea to seek advice from a tax professional if you are concerned about an ATO audit. A tax professional like Westcourt can help you understand your rights and obligations during an ATO audit and represent you during the audit process.