Generally, when the ATO identifies a compliance risk they will review your tax affairs. They may decide to conduct an audit if areas of concern are identified.
The ATO are guided by the facts and won’t necessarily follow every step of the typical tax assurance process. For example, during a risk review you may make a voluntary disclosure that resolves the issue.
In some instances, the nature of transactions and the ATO knowledge of the compliance risks mean that they will proceed directly to an audit after the risks are analysed. This may happen if the ATO consider your business or particular arrangement is higher risk, involves carrying forward a previous audit or is time sensitive.
ATO audits cover a range of areas including income tax, deductions, under reported revenue, superannuation, GST and motor vehicles to name a few.
ATO audits can happen any time to a business, but now with JobKeeper, early release of super and COVID-19 cashflow boost payments, the ATO will be reviewing and auditing a lot more businesses in the future.
The ATO will usually conduct a risk review initially, to determine if there are compliance issues that warrant a full audit process. Often the risk review process allows issues to be resolved quickly and simply without the need for a full audit.
If an audit is instigated, there are several stages including an initial meeting, research and investigation by the ATO agents and discussions with the business owner before the ATO issues a final audit report and outcomes. Often the ATO will issue an interim report before the final report, allowing the business owner to review their position and make comment or provide further information. Some audits will be concluded within a few months and others may take up to 18 months.
There are several types of audits for small to medium enterprises, including record keeping, income tax, data comparison, cash and hidden economy and superannuation guarantee audits.
What to Expect
- If your business is linked with a registered tax or BAS agent, the ATO will generally liaise with them first. The business will be assigned an ATO case officer.
- An initial interview, at which they will explain why the business was selected for an audit. The ATO representative should give an indication of the period to be audited, the business owner’s obligations, what to expect from the ATO during the process and an opportunity for voluntary disclosure. They will also provide the means for raising concerns during the audit or for disputing the result of the audit.
- Investigation of business records. Business records are crucial to an ATO audit going smoothly and efficiently. The easier it is to access business records, the quicker the process will be finished. The ATO will require access to all records including bank statements, contracts, agreements, payroll, finance arrangements, asset purchase and disposal, and all accounting records.
- Personal records may also be needed if the ATO suspects significant undeclared cash income.
- For JobKeeper and COVID-19 audits, you will need to show calculations of turnover reduction and employee nomination forms.
- The ATO has a flexible and cooperative approach. Assume the best; just as much as you want the audit to be over, they want to resolve the issues. Be calm and professional in your dealings with your case officer.
If you’ve been contacted directly by the ATO about a review or audit, talk to us about helping you through the process to reduce the stress of the process.
Even if you haven’t been flagged for an audit yet, we can help proactively manage your records and get your systems and accounts into excellent shape to minimise the impact on your business. Professionally managing the audit process will save you time and money.