The ATO makes it very clear that when it comes to their compliance programs, they are active with their review and audit practices. They also advise that data matching is a key component of their surveillance programs.
Tax compliance is more than just an annual income tax return. It is a key document that the ATO uses to interact with a business and who they select to be audited.
In order to avoid going under the ATO microscope, you can be proactive in addressing likely audit triggers such as the following:
1. Industry Financial Performance
Tax returns are statistically analysed by the ATO. For a business, one aspect that is analysed is their performance compared to their industry peers. If your business is inconsistent with the industry, this can be a red flag to the ATO that there are tax issues such as unreported income and unusual expense claims.
2. Incorrect Payment of Employee Superannuation
A complaint to the ATO against you for not paying superannuation to your employees, or not paying employee superannuation on time, is a sure fire way to be reviewed or audited. These audits usually start with a review of your superannuation guarantee obligations and can then lead to income tax, GST and FBT audits.
3. Variances Between Business Activity Statements and Tax Returns
A crucial part of tax risk management is reconciling the information reported on a business activity statement to the tax return. Large variances between the two are likely to trigger an ATO audit or review.
4. Poor Record of On Time Lodgements
If you think that lodging your tax return on time is enough for the ATO, think again! All compliance obligations, including activity statements and FBT returns, as well as any tax liabilities need to be paid on time. Having a good compliance history can go a long way towards the ATO’s perception of your business.
5. Consistently Showing a Loss
If you have three loss years out of five, the ATO views this as indicative of problems. Your reasons may be genuine however, the ATO is likely to want to investigate what is going on.
6. Not Lodging FBT Returns for Business Vehicles
Motor vehicle registries send data to the ATO regarding individuals or businesses that have purchased vehicles, generally with a value of $10,000 or more. For a business, the ATO will match this information with information reported in tax returns, activity statements and FBT returns, with an understanding that there will be some private use.
If a company or trust fails to lodge an FBT return outlining the private usage, or omits a ‘fringe benefit employee contribution’ in the income section of the tax return, then the ATO is not likely to be too far away with a review or audit.
An audit triggered as a result of a business owning a motor vehicle will generally cover income tax, GST and FBT.
7. Incorrect Disclosure
A tax return is the primary way that the ATO collects information about a business. Mistakes in disclosure items can cause a business to be flagged for review. The ATO is able to easily verify disclosures against publicly available information so it is important to get any disclosures right.
8. Big Fluctuations in Financial Position
Tax returns are compared year on year by the ATO. Should there be big fluctuations in financial position in the tax return then it is likely to trigger an inquiry from the ATO.
9. International Transactions
International transactions have become a key area of focus for the ATO. Transactions with tax havens, funds transferred in an out of Australia and transactions with international related parties are examples of what can raise an inquiry from the ATO.
It is best practice to seek advice when engaging in international transactions, given the increase in personal risk that directors carry when their company conducts international transactions.
Not all publicity is good publicity when it comes to the ATO. Major transactions, disputes and the sale of high value assets reported in the media will undoubtedly be seen by the ATO. It is from this publicity that many business owners are selected for a review.
We can proactively assist you to reduce your risk of triggering an audit with services such as checking that your BAS is reconciled or comparing your business to your industry peers. Also having audit insurance in place can take the worry out of what the ATO will ask you as well as covering our professional fees, which you will incur as a result of our negotiations with the ATO.
If you would like more information on ways to reduce your risk of audit or how we can help you with audit insurance, please contact us on (02) 9534 5733 or via email at firstname.lastname@example.org