When the taxman comes knocking
“I’m from the Tax Office and I’m here to help you.”
Fateful words, and ones that you probably don’t believe.
Nobody wants to have a tax audit but if you are in business for long enough it is highly likely that one will occur. And the Australian Taxation Office has recently changed its audit approach.
Knowing what to expect and how to best manage an audit gives you a much higher probability of getting the right outcome.
Over recent years, the ATO has looked to maximise its audit coverage by doing a range of phone and desk-based audits.
This has been supported by wide-ranging campaigns typically signalled by a letter arriving in the mail with a specific area being targeted.
Common to all of these approaches was that there was minimal face-to-face contact unless the audit elevated.
But much of that has changed. The ATO has now moved back to a program of visiting the taxpayer.
If you receive a call and the ATO wants to come out to your place of business, this is simply a reflection of their new approach.
Why the new approach? There are probably a number of reasons. These include:
- Putting a face to the ATO.
- Developing practical experience for their audit staff and giving them exposure to business in real life setting.
- Arguably where the parties meet face to face you can complete enquiries faster and more efficiently.
- Being in the business may allow the ATO to detect other issues or form a view around the compliance level of the business
Whilst the majority of audits are targeted to a specific area, where something arises in the audit or is detected during the visit then the ATO will expand the audit.
So managing an audit becomes even more important. The way you manage the process will often determine both the outcome and how painful the process will be.
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Here are some tips on how to manage the audit process:
- If you are selected for audit, make sure the ATO provide you in writing with a clear scope of the areas they want to review.
- Don’t feel rushed to set the date for the ATO to visit. You are entitled to agree a date that fits with your business program – within reason.
- Allow sufficient time to review the records of the audit area and to ensure that there are no issues or problems.
- Be prepared. Have the files and documents ready for the auditor. You do not want to be chasing these down on the day.
- During the audit stick to the issues at hand. Too many people talk themselves into problems by opening up other issues. Stay on point, answer the questions asked and move on.
- If a problem does exist, consider whether you should make a voluntary disclosure. It will not save you the tax liability but will mitigate on penalties.
- Accept that the ATO auditors have a job to do. Don’t go into the meeting with a chip on your shoulder or looking to pick a fight.
- Use an advisor. Your accountant should be experienced in managing tax audits. Having them in attendance and working with you should protect your interests and assist the efficiency of the process.
There are more audits occurring. Knowing how to manage them will protect you from the downside.
Greg Hayes is a director of Hayes Knight and specialises in taxation and business planning advice.