In Australia, the ATO usually conducts audits on businesses every 3 years, or if their data matching system triggers warnings that returns may be incorrect. If the tax returns contain incorrect information or the ATO finds that the figures do not meet GST obligations, the ATO may choose to audit your business immediately.
Due to the current pandemic, ATO has been cracking down on businesses and as a result, more audits are being performed than ever before to ensure every entity is paying its fair share of tax. The process is a stressful and time-consuming process that is best avoided by simply lodging returns in a correct and precise manner.
Common Ways to Trigger an Audit
What these triggers show is that tax compliance – annual income tax returns – are much more than a routine compliance process. It is the main way they interact with the ATO and manages their risk of being selected for audit.
Note that those businesses, who demonstrate best practice, will have an active tax risk management process in place involving both senior management of the business and their key external advisors such as those clients already with R T Accounting & Taxation Services. You can add significant value by being proactive in looking for (and addressing) likely audit triggers. Below are few ways businesses trigger an ATO audit.
Have out of normal Financial Performance not in line with your industry
- The ATO has benchmarks and data matching software to compare your business entity with others in the same industry. If you are inconsistent with the industry you operate in, this can raise a red flag with the ATO and in turn, trigger an audit.
Not paying the correct super to your employees
- If employees complain to the ATO that they haven’t been paid the correct super or nothing at all, this is a well-known way to get an Audit from the ATO. Most cases begin with a check of the employer’s superannuation obligations and snowball into income tax, GST and FBT if the superannuation obligations were found not to have been met.
Variances between Tax Return and BAS
- If there is a variance between the income amount you reported in your BAS’s during the year and what you report on your final tax return, then the ATO may review you accounts to check which amount is correct.
Large fluctuations between years
- This one is a little easier to manage currently as COVID has resulted in many businesses showing large discrepancies between their 2019 returns and their 2021 returns. However, be prepared for an ATO inquiry if it doesn’t match in line with other businesses in the same industry.
Have International Transactions
- Any entity who deals internationally should seek a tax agents’ advice when dealing with international companies as legislative changes could increase potential risk in getting audited.
Consistently lodge tax returns late
- It is important to lodge and pay your obligations to the ATO on time. It goes without saying, that if you regularly lodge and pay returns late then the ATO will submit enquiries about the reasons why you aren’t lodging these items on time.
Consistently show losses
- If you have recorded a loss in 3 out of the 5 years the business is operation, the ATO will likely want to investigate these.
Own Motor Vehicles, but don’t lodge an FBT Return
- A common mistake by small and medium sized businesses is to buy a car in their company’s name. The ATO have a data matching partnership with the state and territory motor vehicle registries to outline what cars have been purchased under whose name.
- It is generally expected that these cars in the company’s name will be used for private purposes at some point, so if the company or trust fails to lodge an FBT return or include Fringe Benefit Employee Contribution in the tax return, the ATO audit is likely to be knocking on your door sooner or later.
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Nobody wants to be audited by the ATO. The Australian Taxation Office (ATO) and the audit are usually two of the most dreaded phrases for Australian SMEs. However, these are a few tips and tricks and some insightful, accurate and consistent advice we want to share with you to make any interaction with the ATO less stressful for you.