Being audited is a dread or even fear common to virtually all businesses and taxpayers alike. My Business asked the ATO to reveal what red flags usually trigger an audit, and whether the self-employed are more likely to be audited.
“The ATO uses a range of tools and techniques to identify taxpayers that may warrant closer scrutiny. Reviews and audits are selected based on our assessment of the level of risk,” a spokesperson said.
Are the self-employed more at risk of an audit?
A common idea is that self-employed people are much more likely to be audited than employees, because of the fact that they do their own reporting, and often blend work and personal in order to simply get the job done.
But the tax office spokesperson told My Business that this is not true, with no discernible difference in audit rates among business leaders and employees.
“Being self-employed is not a factor that will influence whether a taxpayer is more or less likely to be scrutinised. For example, for small businesses we use small business benchmarks, data matching and other risk indicators to identify businesses that may be avoiding or having trouble meeting their tax and super obligations.”
Likewise, an audit does not necessarily mean that one has done something wrong — merely that something is unusual and warrants a closer look.
“If we review the tax or super affairs of a taxpayer, it does not mean we consider the taxpayer has been dishonest,” the spokesperson said.
“If we find a discrepancy, we accept that sometimes mistakes can be made and give the taxpayer the opportunity to provide extra information or context in terms of their situation, and consider this (where the law allows us to) in determining if any penalties should apply.”
Tax agents and their clients
The Tax Practitioners Board (TPB) revealed this week what is putting pressure on accountants to get their own tax affairs in order — both personal and their practice — revealing that around 5,000 Australian tax agents have outstanding tax debts to the ATO greater than $300.
The Tax Institute suggested that this is unlikely to have any implications for their clients. However, the ATO spokesperson told My Business that client audits are always a possibility, depending on the scope and findings of any review into a tax agent.
“A tax agent’s own obligations are one of a number of factors we use to determine which tax practices are reviewed, reviews may lead to agent and/or client audits,” the spokesperson said.
You’ve been put on notice for an audit — now what?
If the ATO does issue notice that it plans to conduct an audit, either of you personally or your business, the first thing to do is ensure that receipts for everything are to hand and that all documentation is correct.
“A review or audit usually involves looking at the taxpayer’s affairs to ensure the information provided is accurate and complies with their tax and super obligations,” the spokesperson explained.
“We prefer to work with taxpayers to obtain information cooperatively, which may require a range of interactions including meetings either by phone or in person.”
They said that anyone facing an audit should be open and honest in all of their dealings with investigators, and to:
- Tell the ATO about anything that could delay the audit or review
- Provide complete and accurate information when requested, and do so in a timely manner
- Allow investigators to take copies or extracts from receipts and documents if needed during face-to-face meetings
- Give investigators unfettered access to premises, documents and records if requested
More information on the audit process can be found on the ATO’s website.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.