ATO audits are likely to rise!
What do you need to know about ATO audits and what are their targets?
ATO Audits are likely to rise
Audits are a stressful situation; the outcomes are generally unclear, and the process can seem unfamiliar to anyone who hasn’t been through one before. Be assured, most audits go fairly smoothly and are resolved in a reasonable time frame.
What is the ATO auditing?
This is the best place to start assessing your audit. Is the Australia Taxation Office (ATO) targeting something specific (like superannuation, GST, sale of a property etc) or is it a more general audit (looking at all entities in the group over a number of years)? Specific audits like superannuation tend to run for less time as they are just looking at one area of law. This doesn’t mean you should let your guard down; it is possible for specific audits to turn into general audits if the ATO find reasons to do so.
The ATO is investing significant resources at the moment into the audit areas of JobKeeper, cashflow boost and the early access to superannuation rules. The ATO is using a lot of data matching tools to try and identify any at risk cases around these topics and is then making contact to commence a formal audit.
Who should you talk to?
The best place to start is your accountant, they are your first line of defence against an audit. They will be able to assess the complexity of the case and should be able to start identifying the areas of concern. Depending on the complexity of the audit, a lawyer may also be required, this should be a specialist tax lawyer not the commercial lawyer you use for other transactions. Lawyers tend to get involved in larger or more complex cases. The earlier you can bring in the lawyer, the more value they can add to the audit. In some cases, you may even need a barrister, but this is generally where you are heading off to court or if you are trying to add more weight behind an argument to the Tax Office.
How long will an audit take?
This question comes up at the start of every audit and there is no definite answer. Specific audits tend to finish up quickly assuming you are providing the information required on a timely basis. They are often resolved within months of the audit being commenced. For general audits the answer is more ‘how long is a piece of string?’, as factors like the complexity of your structures come into play.
How much will it cost to defend?
This goes hand in hand with ‘how long will it take?’. Specific audits tend to be cheaper to run as you usually only need an accountant to assist. With general audits the costs can start to rise. If the accountant can run the audit directly the costs will be moderate. If additional parties are required (lawyers, barristers, valuers etc) the costs can start to escalate quickly. You will need to start to make some decisions in terms of if the case is worth defending and how much time and money you’re willing to spend defending your position.
Should I talk to the ATO?
Unless instructed to by your accountant or lawyer, the answer should be no. Whilst dealing directly with the ATO may seem like a way to save costs, most business owners are passionate about their business and defending their position and can tend to say things in a way that may antagonise the issue further.
Do you have audit insurance? A lot of business will have audit insurance and not even realise they do as it will be a small part of a larger business policy. Some accountants also offer specific policies around audit insurance. These policies can go a long way to covering the costs of running an audit defence, however you need to understand what is included and what is not included early on in the audit and not assume that all costs are covered. Some policies limit who can provide the services, so you need to understand this early on.
The morale of the story
DON’T PANIC. Talk to your trusted adviser, ensure all your record keeping is up to date and if you have any questions just ask. It is easier to fix now rather than later.
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