Do you know what to do if your business is selected for a review or audit?
Receiving notice of a tax review or audit is likely to be unexpected and very stressful. The process is often lengthy and can take years to complete.
If you do receive an audit notice you must comply fully and promptly. This can be difficult. You may need to locate many documents going back 4 years, or more in some circumstances.
The ATO has very broad powers and can ask you to provide complete back-up copies of your electronic business and accounting systems, GST detail reports, tax invoices, sales and purchase records, wage books, staff rosters and time sheets, evidence of super contributions, profit and loss, balance sheets, asset registers, depreciation schedules, general ledgers, bank and credit card statements, EFT advices, information about your personal living expenses and those of other people linked to you or your business, your personal bank statements and credit card accounts.
Your business records will contain personal information about your customers which raises serious privacy concerns.
The ATO can seek information from third parties including customers, employees, banks and suppliers.
In some situations the ATO will ask you to attend a formal interview and answer questions. You are usually permitted to have a legal representative attend with you and it is a good idea to do so.
Are you on the ATO radar?
The ATO has identified a significant “small business income tax gap” and is actively conducting audits in the small business space, in relation to omitted income and PAYG discrepancies, incorrect GST reporting, non-compliance with employer obligations, mistakes resulting from business structures, to name a few.
The ATO have sophisticated systems which enable it to:
- identify small business owners who tend to maintain a lifestyle exceeding their personal income;
- perform third party data-matching analytics to identify discrepancies; and
- compare your business with similar businesses to identify excessive deductions or unusually low income.
What should you do if you are audited?
It is important to engage early and proactively with the officer in charge of the audit. ATO officers will often accommodate reasonable requests where a spirit of cooperation has been established from the outset. Early engagement also helps to get to the crux of their concerns.
It is important to consider whether you need to make any disclosures to the ATO. If you have made errors and you disclose them, there may be a reduction in penalties.
You should immediately seek assistance from an experienced qualified professional advisor who can assist and support you through the process.
If you are being audited and require assistance please contact our corporate and commercial team.
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