How to trigger an ATO Audit?
How to trigger an ATO Audit?
I have been an accountant for over 20 years, and this is by far the worst I have ever seen the ATO (Australian Tax Office) in terms or warnings and potential actions (ATO Audit) leading up to a tax year. It really is a case of “gloves off” approach by the ATO this year and they are non-apologetic about it.
Accordingly, Tax Agents are bracing for a large number of audits this coming year, including on small claims such as laundry and business usage on phones and internet (which is unusual).
Common ways you could have yourself selected for Audit by the ATO:
- Not paying your employees superannuation
Tax agents suspect this will be a very high priority in the coming 2 years. They have also announced an Amnesty indicating you need to get it up to date, or server penalties will apply on detection later. A sure sign Audits are coming in this area.
- Undeclared cash (or other) income
They have a number of ways to track and detect this, including matching to deposit information at banks, spot visits to cash businesses (they caught over 30 businesses on the Sunshine Coast 12 months ago using this – ie Cafes so-on), Costs of living by postcode vs income, benchmarks outside industry and many more.
- Businesses consistently showing losses
Are you operating a business or a hobby? The ATO view consistent losses as a hobby or lifestyle choice and are likely to deny your loss or audit your expense claims. This is particularly relevant if you have employment income and are running a side business or farm.
- Financial business performance that is not in line with your industries benchmarks.
The ATO have access to an incredible amount of information, and if they wish, can compare your business to other businesses by postcode, type so-on. Be careful not to push the envelope too far on your claims or what is considered “reasonable”.
- Claiming deductions more than others in your job description
same as above, but for employees.
- A poor lodgement and payment history with the ATO
- Using a Tax Agent with a history of Audit Failures
Just as the ATO benchmark businesses, they benchmark tax agents. You should only use those tax agents that are trustworthy and understand the rules (i.e. check their qualifications, experience, how far they push the envelope). Even if you do the right thing, you may be tarnished by association.
- Luxury cars, boats and homes…
With low income or owned in business structures. The ATO data match to State Government registration details to check whom might be an audit candidate.
- Unexplained wealth or lifestyle…
Including travel overseas…. In fact, the Commissioner in a recent interview with the Chartered Accountants gave this example, “say you have a two parent family reporting $70,000 and $50,000, but has three children at private schools, has taken business class flights on overseas trips three times in the last two years” might be a flag for audit. Did you know that the ATO have access and data match flight records, credit card transactions, bank deposits, and a dedicated Social Media team that trawl social media posts of people they believe might be living beyond their means (potential hidden income). They have already successfully caught or proven undeclared income using social media.
- Motor Vehicles owed in business structures and nothing reported at Employee Reimbursements/FBT Reimbursements in the tax return.
Use an accountant that does it properly will solve this one. Not all accountants are created equal.
Of course, the key is to avoid the above ATO Audit triggers…. And where some of those items are just part of your normal business or profession (ie Travel), then ensuring you have the documentation to back up your claim and an accountant that knows the relevant rules.
Holmans also offer ATO audit protection insurance to our clients. The premium covers our professional fees to assist you manage a review or audit from the ATO, if you are selected. It also covers other Government Audits such as Workers Compensation, Workcover and Payroll Tax authorities.
Need help and want more information? Call Holmans for assistance on (07) 5430 7600 or send us an email.