What triggers an audit, what to do if you are targeted by the ATO for a tax audit, and are you protected?
The ATO are using their increased and sophisticated data-matching capabilities to full effect, targeting an unprecedented amount of entities and individuals whose activities or financial performances are outside of their expected benchmarks. The following are some of the triggers for audits that we have seen recently:
- Work-related expenses – where they are higher than industry standard
- Motor Vehicle purchase in a company, especially where no FBT return lodged
- Financial performance that is outside of industry standard
- Failing to meet SG payment obligations on time
- Variances between tax return and BAS reporting
- Big fluctuations in performance between years
- Expensive personal use assets – such as a boat, artwork, race horse – and a lower than expected personal taxable income (SEE ARTICLE – ATO Targets ‘lifestyle’ assets )
These are just some of the examples, but there is an abundance of other red flags that can trigger an audit or review – and we are currently seeing unprecedented audit activity from the ATO.
Some of the sophisticated data matching tools that the ATO is using is from data collected from:
- Single Touch Payroll
- State Revenue– eg payroll tax and stamp duty
- Insurance companies
- Ride-share platforms (eg UBER) and home-share platforms (eg AirBNB)
The abundance of data available to them means that ATO audits are on the rise – significantly!
What to do if you are targeted
Being the subject of an audit or review can be stressful, and potentially expensive – with extra tax payable, interest and penalties. Seeking professional help from your accountant is the first step. It is important to take action as soon as possible – because any non-action will result in the Tax Office making an adjustment on what they think should apply. Your Accountant will often be the best person to liaise with the Tax Office about your situation, and explain any ‘discrepancies’ the ATO have identified. Remember – the tax office’s data matching is not infallible – just because you are the subject of an audit, doesn’t mean there are errors in your returns.
Counting the cost of an audit
Even when the outcome of a tax audit is positive, the process itself may not be. Just to collate all of the information requested by the ATO can take between 10 and 20 hours – $3,000 to $6,000 in fees. That doesn’t include the time taken with the actual auditors – which is often 3-4 hours, at least (another $1,500+). For bigger, more complicated entities, these fees can skyrocket.
Even the most vigilant taxpayer can be the target of an audit. Proactively reducing risk of an audit – by ensuring (for example) your BAS reconciles with your tax return; or benchmarking outcomes are similar to that of your industry peers – is recommended. Another option to mitigate the stress of an audit is to ensure you are adequately insured with Accounting Insurance – a cost effective solution for protecting yourself against the cost of professional fees as a result of an audit.
Please contact us if you have any concerns, or would like more information about accounting insurance.
HFB’s – Accountancy Insurance Service Offering
It’s not too late to take up our Accountancy Insurance (Audit Shield) offering that was posted to you late last year. In fact, at anytime you you are able to take up this offering. Simply phone our office and we will provide you with a quote for this service.
Want to know more about our Audit Shield service offering? Check out the details on our website – here.