“This is the Tax Office. We have identified your business for audit.” These words will send chills down any business owner’s spine. The whole process of an audit can be time consuming and costly, even when you have absolutely nothing to hide.
Let’s first have a look at who gets audited so you can assess how likely you are to get the call from the ATO, and then let’s explore what to do if the call does come.
Who Gets Audited?
Although it is possible to get audited on a purely random basis, the ATO is becoming increasingly sophisticated in how they target individuals and businesses for audit.
The ATO have published over 100 industry benchmarks, which they use for comparison. If your business results differ significantly from these benchmarks you may be targeted for audit.
Increasingly the ATO are data matching information from banks, share registries, employers, merchants, states and other government departments. If information in your return is inconsistent with information found in other sources this may trigger an audit.
Tax inspectors like to focus on cash businesses, endeavoring to compare lifestyle with returns. If your declared income is low but you are living a large house with five kids in private school, the ATO may start asking questions.
Every year the ATO identifies selected industries and areas for particular attention. In the 2013/14-year these targets include:
- Tradies in the building and construction industry will be targeted for incorrect work deductions, concessions, offsets and credits.
- Cafes, restaurants, carpentry services and real estate agents will be under the microscope for compliance with Super Guarantee obligations.
- A trust taskforce has been established to target individuals and businesses that seek to misusetrusts to avoid paying tax.
Minimise Your Chance of Audit…and Be Prepared
To a certain degree getting audited is about luck, but there are certainly things you can do to minimize your chance.
First, file and pay all your returns on time. If for any reason you are late or cannot make payment, contact the ATO as soon as possible to explain.
Keep your private financial affairs separate from your business affairs. Only use a business bank account and business credit card for business expenses. If you do use a personal credit card get a separate one that you use solely for business.
Make sure your financial records are reconciled, tidy and up to date and keep all supporting documentation including receipts, sales invoices and supplier invoices.
For more information about who is in the ATO’s sights, have a listen to our podcast Beware Audit Triggers.
What Do I Do if They Pick Me?
The very first thing you should do is call your accountant (hopefully us). We know how the process works, what to expect and how to manage things. Letting us take charge will relieve you of stress and worry that could stall your efforts to keep your business moving forward.
If the ATO asks to meet with you, arrange that the meeting be held at your accountants’ office. Meeting at the tax office can be intimidating, meeting at your office can be disruptive and meeting at your home may give the tax office more information than you expect.
Ask the ATO to direct all communication to one person. We recommend this be your accountant. This avoids confusing your employees, disrupting workflows and potential miscommunication.
If this all sounds expensive….it could be. So we strongly recommend that all our clients take out audit insurance to cover any professional fees associated with an audit. This enables you to delegate the audit process to a professional without having to stress about the cost.
MJ Accountants offer our clients a personalized Audit Shield insurance package. If you have not already made arrangements for audit insurance please contact us today.