The ATO conducts an audit to verify compliance with your tax obligations and determine if you owe any taxes. The ATO has the power to audit any taxpayer, and they undertake most audits using information matching.
The ATO will compare the information you provide with information from data matching third-party sources. If there are discrepancies, they may select you or your business for an audit.
There’s no doubt that being selected for an audit by the ATO seems like a daunting experience. Still, it’s important to remember that even if the ATO selects you for an audit, it doesn’t necessarily mean that there are problems with your tax return. In most cases, audits simply involve providing additional information or documentation to the ATO for review.
So, there is no need to panic. The best way to prepare for undergoing ATO audits is to know what to expect.
Here’s the rundown.
Contents
What is an ATO Audit?
An ATO audit is a process conducted by the Australian Tax Office (ATO) to assess a taxpayer’s compliance with taxation laws. The ATO may audit individuals, businesses, or both. ATO audits aim to ensure that taxpayers are correctly reporting their income and paying the accurate amount of tax.
You can trigger tax audits a number of different ways including discrepancies between a taxpayer’s declared income and expenditure or changes in a taxpayer’s circumstances. During tax audits, the ATO will request documents and information from the taxpayer about their declared income.
Once the ATO has completed its review, it will issue a report outlining its findings. If the ATO finds that taxpayers have underpaid their taxes (such as on their capital gains), they may be required to pay back taxes, interest, and penalties. In some cases, where the ATO finds a taxpayer to have been evading tax, the ATO may initiate criminal proceedings.
The good news is that as long as you are confident that you’ve submitted your tax return online, your affairs are in order, and you haven’t intentionally skirted the law, you should not be concerned. While no one’s tax situation is perfect, the ATO is typically more concerned with cases of fraud or evasion.
So, as long as you are honest and have kept good records of the relevant information, you should be able to sleep soundly through an audit.
What Does the Tax Audit Process Entail?
Before the ATO instigates a full audit, they’ll generally conduct a risk review of any flagged taxpayers. A risk review is a process whereby the ATO assesses a taxpayer’s compliance risk, allowing the ATO to determine if any issues with their tax return or business activity statements (BAS) warrant a full audit.
Often, the risk review process will identify areas of non-compliance that you can quickly and easily resolve without needing a full audit. This saves both the taxpayer and the ATO time and resources.
It’s also worth noting that the ATO uses the review process to identify whether or not you’re paying too much tax. So, it’s not all about non-compliance – they’re also ensuring you’re not getting the short end of the stick.
If, after the review, the ATO believes they have sufficient information to warrant a full audit, you or your tax agent will receive a letter to inform you of their intentions to proceed with the audit. There are a few different stages throughout the process that the assigned ATO tax agent will complete before issuing the final report.
Stage 1: The Phone Call
The first stage of the process is a phone call from the auditor to arrange a preliminary meeting. During this call, the auditor will let you know what type of records they will need to see and what dates they cover. They will also give you an idea of what they look for during the audit.
Stage 2: Written Confirmation
Following the phone call, you will receive written confirmation of the details of the preliminary meeting, including what records they will require and the date range that they will cover.
Stage 3: Meeting With ATO Officer
At the meeting, the ATO officer will go over the scope of the audit. They will also outline how they plan on conducting the audit. This is your opportunity to ask questions and get clarification on anything you don’t understand. This meeting may be done remotely or face to face.
Stage 4: Investigation of Business or Personal Records
Once the meeting is over, it’s time for the ATO officer to investigate your records. This may involve looking at your business bank accounts and tax records if you’re a business owner or your personal records if you’re an individual taxpayer.
The ATO should inform you and/or your accountant throughout this process.
Stage 5: Conclusion and Explanation of Results
After conducting their investigation, the ATO officer will explain their findings. If they find any discrepancies, they will explain how you can go about rectifying them. In some cases, this may involve paying additional taxes or interest charges. If they find you’ve paid too much tax, you will receive a tax refund. If the ATO didn’t pick up any discrepancies, then you’re in luck—the audit is complete.
Addressing Complaints or Disputes After the Outcome
The ATO has several options available if you disagree with the outcome of your audit. If you believe they have made a mistake, you can dispute the outcome through alternative dispute resolution (ADR) or in-house facilitation with an ATO facilitator.
ADR is a process where both parties agree to use a neutral third party to help them resolve their differences. The third party does this through mediation, conciliation, or arbitration. In-house facilitation is where the company and the ATO meet with a facilitator to try to reach an agreement.
For more information and details on resolving disputes after the audit, you can visit the ATO’s website. Alternatively, if you would like to proceed with lodging a complaint or objection, click here.
You might also be interested in our Guide to Surviving an ATO Audit
Key Takeaways
While no one likes to go through an audit, it’s important to remember that it’s just a part of doing business (or paying taxes).
The best way to prepare for ATO audits is to ensure that your tax returns are accurate and up-to-date before submission. Keeping good records throughout the year will also make it easier to provide the ATO with any information or documentation they request during an audit.
With careful planning and execution, you can get through ATO audits with minimal stress and disruption to your business.
And don’t hesitate to seek professional advice if you need it.
At Box Advisory Services, we have a team of experienced tax professionals who are well-versed in the tax audit process. We understand that this can be a stressful and confusing time for our clients, which is why we offer a free consultation to discuss your specific situation.
We will review your tax assessments and help you develop a plan of action to ensure that you’re fully prepared for the audit. We also have a positive reputation with the ATO, which means that our clients often avoid being audited in the first place.
If you’re concerned about an upcoming audit, or if you simply want to ensure that your taxes are in order, contact us today.
