The Australian Tax Office (ATO) rarely springs an unexpected tax audit on an individual or business. When you receive a call from the ATO, it may or may not lead to a tax audit. They actively review small business tax returns and activity statements to make sure they are meeting the ATO’s benchmark for that industry.
You’ll most likely be sent a letter stating that the ATO has found something missing from your tax return. If you agree with their assessment, you don’t need to do anything. They’ll send you a notice of amended assessment, and you pay the amount required.
If the ATO finds evidence that you or your business has not met its tax obligations, they may decide to conduct an audit. If this happens, they’ll expect free and full access to buildings, records, premises and documents.
Only confidential documents between you and your barrister, solicitor or professional accountant are excluded. The ATO is not interested in penalising you if you make an honest error. They are looking for businesses with a reckless disregard for the tax rules.
If the ATO informs you they plan to audit your books, you should immediately call for help from a professional accountant. They will make sure that you are aware of your rights and see that the audit is conducted properly according to the relevant tax law and the administrative practices of the ATO in the area.
There are two types of tax audits including audits and reviews.
What Are The ATO Looking For in a Tax Audit?
When the ATO does a tax audit, they are making sure the information you gave was accurate, such as:
• Did you declare all the income you received?
• Are you entitled to all the credits, deductions and tax offsets you claimed?
• Did you correctly withhold and report PAYG (W) amounts?
• Did you correctly calculate and report other tax-related obligations?
Reviews are used to look for inconsistencies or risks about some transactions, industries or activities. At this time, the ATO will help you comply with your tax obligation and give you the opportunity to correct any errors with a voluntary disclosure.
If you do not make a voluntary disclosure, for whatever reason, they may decide to upgrade the review to an audit. They’ll inform you of their decision.
Facing a Tax Audit?
Facing a Tax Audit?
Audits are used to find errors, measure them and correct them.
Audits can be conducted without first doing a review or they can follow a review. Even with an audit, you’ll be given the opportunity to make a voluntary disclosure.
If you have been informed by the ATO that they plan to do an audit, you can make corrections to your tax statement by phone using the correct procedures.
Your best protection from, accidently or on purpose, sending a false tax return is to have a professional accountant either fill out your forms or help you fill them out.
You should always be prepared for an audit. This will take the stress out of taxes.
Some tips for making the tax process easier are:
• Keep all receipts for expenses you plan to claim on your taxes
• Keep the receipts for three and a half years
• Don’t ignore the letter from the Tax Office and hope they will overlook you
• Take a professional tax accountant with you if you go to the Tax Office for an interview or with you in your home
• Never antagonise the auditor. Always be cooperative and polite
• Have your professional tax accountant check the amended assessment when you receive it
Business audits are much more complicated. The main way the ATO examines businesses is by comparing the assets owned by the business owner to the lifestyle with the declared income. If the expenditure is far more than the income, the ATO will consider that tax evasion is probable.
They will request an interview with the owner, which usually takes place on the business premises. They will look at the books for the past five years and ask questions about the business owner’s personal finances and may want to see his or her residence.
In the end, the auditor will tell the business owner what adjustments and penalties are being proposed. The business owner will then, with the help of an accountant, be able to contest the adjustments and give mitigating circumstances to reduce the penalties.
Need some professional advice in relation to a Tax Audit you may need to prepare for? Let the team at TNR help you. Phone (02) 6621 8544 today.
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