Tax audit; Minimise the potential impact by consulting a professional accountant

The Australian Taxation Office (ATO) may ask for more information to establish the accuracy of your tax receipts and to ensure you have met your reporting obligations. It's known as a tax audit.

Should you fear it? Is it something better managed by your accountant? Here are the basics of being audited by the ATO.

Review or audit?

A tax review is conducted to check for any errors and help you correct them. As the ATO says, "If we find evidence during a review that you have not met your tax obligations, we may decide to conduct an audit."

A tax audit is conducted if the ATO suspects you are not reporting your income accurately or that a tax review won't deliver the answers it needs.

Get advice

"Business owners should involve their accountant at the outset so that effective strategies can be put in place to manage all aspects of the tax audit," says Anthony Richardson, principal of Prompt Taxation & Accounting.

"The client is obviously the one who will need to produce all the invoices and your accountant can then manage the process."

Reasons for a tax audit

The ATO sets financial benchmarks for small and medium enterprises in different industries. If your tax return falls outside the benchmarks for your particular industry, this could flag suspicions of hiding income or claiming fraudulent deductions. The ATO may then initiate an audit.

Preparing for a tax audit

The first step is readying records for every deduction that has been claimed. If in reviewing them you find a mistake, bringing it to the attention of the ATO can reduce penalties.

"A client can tell us what the ATO wants to see and we can then provide assistance to a client to source all of the invoices and receipts and forward a response to the tax office"," says Anthony.

Stages of an audit

1.     Notification: Formal notification that the ATO requires your business to provide information about its tax affairs.

2.     Initial interview: A tax officer will outline the audit process and give you the opportunity to offer information about potential errors.

3.     Enquiry process: The ATO conducts interviews or seeks records, documents or other relevant information.

4.     Findings: The ATO informs you of non-compliance issues uncovered in the audit process, explains the reason for penalties and delivers written notification of the outcome.

Penalties

If the ATO discovers you have under-reported income, you may be asked to pay outstanding taxes and interest on the amount. Penalties may also be applied for breaches.

Further, the Australian Taxpayers' Charter says the ATO can prosecute taxpayers for a range of tax-related offences, including:

• making a false or misleading statement in a tax return
• keeping incorrect or false records to deceive or mislead a tax officer.

Tax audits and your business

If you receive notification of a tax audit, minimise the potential impact on your business by consulting a professional accountant. They will manage the process professionally and efficiently and ensure you comply with the relevant tax laws.