Audit sample: avoiding business overhead problems at tax time

The Australian Taxation Office (ATO) has requested information an audit sample. It's a tax audit, but don't panic. As the ATO says, "It does not mean we think you are dishonest. Even if we find a discrepancy, we accept that mistakes can be made."

So what happens next? In this audit sample we outline what you can expect from the audit process and the possible outcomes for your business.

Your responsibilities 

"As a business owner, your responsibilities are to supply information," says Scott Cameron, from Holzworth Law & Associates.

"That could include bank statements, cash-register documents and receipts," says Scott. "Under the Tax Act, all of your records must be kept and presented in English."

Step 1: Notification

The ATO usually initiates an audit by sending you a letter that: 

• names the tax officer managing your case
• outlines your rights
• details the focus of the audit and how long it will take
• briefs you on the information you need to provide.

"Your first action upon receiving notification should be to contact your accountant," says Scott. "They will then organise a time that's suitable for you to meet the tax officer." 

Step 2: Initial interview

This is an opportunity for you to present any information you believe may be relevant to the ATO's enquiries.

"At the start of the process we can bring any discrepancies we have found to the ATO's attention, avoiding a penalty later when the auditors find the same discrepancy," says Scott. 

Step 3: The Enquiry Process

An audit checks that the information you have sent the Tax Office is accurate. The tax officer will need access to documents relevant to the enquiry, but can use other methods for gathering information, including:

• issuing questionnaires or arranging formal interviews with key staff
• making copies of key documents such as books, records and other papers
• seeking documents held outside Australia.

Step 4: Determination

The first thing you will learn is whether or not you have met your tax obligations. If you have established the legitimacy of your submissions to the ATO you may not be penalised at all.

"But if a client is not prepared for the audit, they could wear a penalty as well as pay the tax plus interest on the outstanding amounts," says Scott.

If you are found to have breached your obligations you may be:

• required to pay outstanding taxes and charged interest on this amount
• penalised for non-compliance
• prosecuted for an offence like making a false statement in a tax return or keeping incorrect records with the intention of deceiving the ATO.

If the ATO writes to you ...

Phone an accountant for advice on how to proceed with an audit sample.

The experts will help you prepare, will communicate with the Tax Office on your behalf and help to minimise the financial fallout from the process.