Imagine sitting down to your computer and a cup of tea at the end of a busy week, and an email from your business advisor pops up with the subject line: Tax Audit ATO. An expletive comes to mind. You’ve never had a tax audit. Why is the ATO ‘targeting’ you? What even happens in a tax audit?
Business Advisor, Ellie Barker outlines what a tax audit looks like and how we can help.
With Government revenue authorities increasingly using data matching, artificial intelligence and even social media, they are able to compare disclosures made in your tax returns to those of other taxpayers or benchmarks.
Common ATO audits we see:
- GST & PAYG
- Superannuation non-compliance
- Wine equalisation tax
- Property development
- Payroll tax
We expect to see:
- Jobkeeper audits
- Cashflow boost audits
- Audits for those industries that are booming – tradies, construction, real estate
An ATO audit could look like this:
- A disgruntled employee leaves your business and makes a complaint to the ATO that you have been underpaying their superannuation. The ATO requires records of all superannuation calculations and payments for all employees for the past 3 years.
- Revenue SA use data matching with the ATO and identify a possible discrepancy with your lodged payroll tax returns. They also look into the ownership of your business and claim that your business should be grouped with a related party, meaning more payroll tax to pay. They require data from multiple years and an explanation of your business structure.
- You sold a property, and the ATO is made aware of this due to matching with property sales data. You demolished the existing house, subdivided, built two new homes and sold one. The ATO requests you complete a 30 page questionnaire regarding the property development and sale. They also request all the transaction data for the whole project, as well as the 3 largest receipts for each quarter. You are running a construction business and don’t have time to gather the info.
- Your individual tax return has a higher dollar value of deductions compared to previous years. The ATO requests a copy of all your bank statements and receipts to verify your claim. You only have the bank statements showing the transactions and no receipts. The ATO, even though their advice is that you can use a bank transaction in most circumstances if you can show what you bought, disallow the claim.
Do I need tax audit insurance?
- Tax audit insurance covers any professional fees associated with audit activity. The audit could come from the ATO, Return to Work SA, Revenue SA (eg payroll tax), or any other federal, state or territory government revenue agency at any time. The audit may be for you individually, your business or your self managed superannuation fund.
- If you don’t have tax audit insurance, professional fees can range from $1,500 for the least expensive audits to tens of thousands of dollars for complex audits.
If you think you need tax audit insurance for your business or your SMSF, please contact Olivia Stead at Altitude Advisory firstname.lastname@example.org. Your current business insurance may or may not cover tax audits so it’s worth a check.
Tax audit insurance doesn’t cover any ATO penalties or underpaid tax, however our Audit Shield service offers retrospective protection from previously lodged returns.