As the dust settles on the last financial year and businesses look to start fresh, some business owners fear a looming audit. No doubt the folks at the ATO are clever and thanks to technology they’re getting even cleverer. Last year the ATO gathered almost 600 million pieces of information from banks, health companies and third party sources to feed into their sophisticated data matching system and specifically target its focus.

Why me?

If the ATO announces they’re auditing you it doesn’t necessarily mean you’ve done something wrong. Most ATO audits are triggered by the ATO’s automatic function that targets people and businesses outside the ‘normal’ deduction range for their industry.

For example if you’re a plumber and you spend more money than the average plumber on materials, this might trigger a red flag in their system. The red flag usually just means you are outside of what they consider “normal” or industry standard.

You’ve got mail

Generally, the ATO will notify taxpayers, by phone or post before an audit is conducted. The notification includes:

• an overview of the reason for the audit
• the subject matter of the audit, the documents and records demanded
• the estimated time to be taken, the right of the taxpayer to legal representation and;
• the part of the ATO that will be dealing with the audit.

The ATO’s notification gives the taxpayer the chance to review their returns and BAS to bring any discrepancies to the ATO’s notice before the audit. It’s kind of like the ATO’s speak-now-or-we’ll-find-out-later policy. The good thing about that small mercy is that the ATO usually grants some reduction of penalties, almost a reward for some up-front honesty (and who said the ATO weren’t nice people?).

Preparing for an audit

A review or audit usually involves looking at your tax affairs to ensure the information you have given the ATO is accurate and you have complied with your tax obligations.

• Once you have received notification of the audit, you need to prepare all documentation for that financial year on audit. Note: audits can go as far back as 2 years for simple taxpayers (most individuals that are not high wealth) and 4 years for all other taxpayers (including businesses). If fraud is involved, the time period is unlimited.

• Meet with your accountant or a professional auditor so that they can review the documentation prepared
• Your accountant will then prepare an audit file and the official response to the ATO.

What next?

The ATO will receive the audit file and all appropriate documentation from your accountant and if necessary will seek further clarification or documentation from them.

This process usually can continue as the ATO continues to seek further clarification until they reach their ruling. Your accountant will then receive the ATO’s decision via post outlining the reasons for their decision.

Not happy with the decision?

Once the ATO has advised of their decision you can choose to object and challenge their findings. At this point we advise our clients to weigh up the cost of proceeding with an objection and the fine or penalty ensued.

Are you facing an Audit and not sure what to do? Talk to us to arrange a consultation.

Or check out our website for more information.

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