ATO AUDIT Help : All you want to know! Why, What & How?
(Article By: Anand Shukla, published April 2014, Publication : BI)
Businesses are obliged to comply on various regulations, rules and laws. These include reporting figures to the ATO correctly and on time in relation to GST, employee obligations, business income and deductions & other statutory documents and statements. You as business owners need to maintain proper records that can be verified in cases of a review or an ATO audit. While running your own business may be cumbersome, you should take your tax and compliance obligations seriously. As an accountant in public practice I have seen individuals and businesses get buried under tax debt and needing to wind off a successful business resulting from an ATO Audit. The tax debt may have been a result of a voluntary disclosure of tax and then not being able to meet the obligations on time or due to an ATO review or an ATO audit of the business. Yes you heard that correctly! Non-compliance may cost you your business and the consequences have far reaching effects on your personal lives too. Such life changing events have the potential to cost you your profession, your family home and also your other assets.
(While I proceed with this article, I need to disclaim my writings of any legal claim whatsoever in relation to any of the contents, opinions and views presented. All content within this document is general in nature and subject to variations given certain situations. Needless to mention all due care has been taken in compiling this writing.)
The ATO’s responsibility is to collect revenue and ensure everyone pays the correct amount of Tax. The Australian way is to maintain a fair go for all and this importantly affects the tax system too. An ATO sponsored survey indicated that most businesses believe they should pay their fair share of tax. However though, the ATO does believe that there may be a few out there who may not be correctly reporting their incomes and/or over stating deductions. Thus there is a need to carry out compliance and risk reviews and ATO audits. Through this article I wish to create awareness in relation to the process of an ATO audit and answer questions in relation to WHY you may be audited, WHAT you may be audited on, and HOW does the ATO carry out the review or the audit.
So let us first consider WHY?
With the help of extra funding this year the ATO’s detection systems have strengthened. To name a few, the ATO uses advanced data matching systems such as comparing data between various government departments, comparing data from your EFTPOS terminals to what has been reported on the Business Activity Statements & Tax Returns and also risk reviews if your reported figures are different to the standard/overall industry benchmarks. If a discrepancy is found in the data comparison, this may prompt a review or an ATO Audit. If the ATO believes that a review cannot look into your scenario sufficiently and that you may have not complied with your obligations this may trigger an ATO audit.
So then WHAT is that gets audited?
An ATO Audit is simply a verification of compliance and the accuracy of figures stated on a tax return, activity statement or any other lodged statements. Hence every tiny bit of information could be subject to audit. However though, ATO may target specific businesses periodically to keep a check on rorts in the system. For example, the ATO may become aware that there is a widespread misconception regarding contractor obligations by employers in the building & construction, security, cleaning & courier industries, then any businesses’ operating in such an industry may be targeted to review their compliance with the law. In another instance, one of the advanced data matching software may singleyou out for a review.
HOW is a review & an audit carried out?
The review is generally conducted by an ATO Audit Officer who studies your records and tries to match them to the lodged reports. This could include requesting a transaction listing for the period being audited, looking for proof of payments made (e.g. bank statements, payment receipts) and contacting your suppliers to verify the integrity of invoices provided. The ATO may request payroll reports or contractor payment summaries as well. Once these records are provided and documents are reviewed by a case officer he/she may then decide whether a review was satisfactory in your case or should there be an audit pertaining the matter. If the officer believes you have not complied with the obligations or a review is not satisfactory given the complexity of the matter or due to some other reason they may then refer the matter to the audit department. When this happens, a review gets converted into an Audit.
To give you a clearer idea, the below is generally the sequence of events in an audit:
Stage 1: You receive a letter outlining that you/your business is under an ATO audit and a case officer has been appointed who wishes to carry out a face to face interview with you.
Stage 2: There would be a one-on-one meeting with your case officer at the interview. You would be advised beforehand about what this interview would be about and what documents need to be carried to this interview. The case officer at this point will not only show his identification card to you but will also provide his/her contact details. He/she will clarify what the ATO is looking for and answer any questions you may have. The ATO refers this stage of an audit as the Initial Interview. At this stage, the ATO officer tries to understand your business and how you run your business and your record keeping and compliance measures. The ATO now forms a blueprint of how the audit will proceed forward.
Stage 3: At this stage the audit is underway and the ATO will keep on requesting information from you up to a point they have enough evidence to support their decision. The ATO will also allow you to choose someone to act on your behalf and have a translator if you have a limited understanding of English. They can also allow a legal representative if you may wish such a person to attend the interviews with you. Also they will ask clear and unambiguous questions to support their decision making. The ATO would also allow you to take notes and may allow you to audio record your conversation. This stage of the audit is the lengthiest one where it may take months to formalise. The ATO will listen to your questions, answer to them and provide reasons if they disagree. Depending on the complexity of the matter they may make announced or unannounced visits to your business locations.
The end of stage 3 is when the audit is completed and a decision is formalised and the ATO will inform you in writing about whether they have made any adjustments or not. They will also inform if any penalties have been applied and the basis of their decision. At this point you will also be advised how to object to the decision if you disagree with the outcome.
Hence, if you have a business and wish to steer clear of trouble from being audited then the best way out is by complying with the law all the time. If you are under audit, consulting a tax agent, who is aware of audit procedures and can help prepare your file as per required by your case officer would be advisable and advantageous since the ATO will follow up with you until the time you have provided the information being requested. Providing them what they need, co-operating with the ATO has the potential to reduce your penalty (if any) that may be applied. Availing second opinions from various other professionals to build up an understanding of the circumstances, obligations and the law may be critical in times of an audit.
The above article is accompanied with a disclaimer. To avail a full copy of this please contact A One Accountants on 03-86091889 and by writing to us on firstname.lastname@example.org.