Whilst business owners are renowned for their resilience and indomitable approach in general, there are a few things which keep them awake at night. Here's what you should know about audits from the taxman...
Fear of the Australian Taxation Office (ATO) is almost universal and a letter from them is still a nervous experience.
You’re sure you have done everything right but just in case, here are a number of triggers where an audit or enquiry may result;
1. Being entitled to a significant BAS refund
Spending more than you earn, such as heavily investing in capital items, especially during a start-up, can result in the ATO owing you money.
The ATO typically conducts a review on the circumstances which have caused this credit before they pay.
2. Having financial performance different to the average for your industry
If your results are inconsistent with your industry peers, the ATO may see this as a red flag.
3. Variations between your tax returns and your BAS returns
Variations between the tax return and the activity statements for the corresponding period is a sure fire trigger.
4. Operating in the cash economy
The ATO targets industries where ‘cash is king’.
5. Not paying superannuation to your employees
If the ATO receives a complaint an employer has not paid any or the right amount of super, or not paid it on time, it is almost guaranteed to result in an audit.
6. Big variations in performance between years
Major variations in financial position can trigger an inquiry.
7. Owning motor vehicles and not lodging FBT returns
The ATO receives data from motor vehicle registries on businesses purchasing vehicles.
These are matched with information reported in tax returns with an expectation that there will be at least some private use.
8. Errors in disclosure items in your tax return
Making disclosure mistakes can mean your business is reviewed.
9. Offshore or international transactions
Transactions with particular countries and significant funds transfers offshore can result in enquiries.
10. Random audits
These types of audits are becoming more prevalent and no business is immune.
11. Becoming famous
The problem with an audit or review is that it is often directed at businesses with no case to answer.
Because SME businesses request their accountant or bookkeeper respond on their behalf, they are generally very expensive. Whether found innocent or guilty there will normally be a fee associated with responding.
Clive Barrett is the executive chairman of First Class Financial Group.