Spring has sprung! We’re seeing a bit of sunshine poking through the clouds in Ballarat and more people starting to venture back onto the beaches around Torquay and along the Surf Coast. The first weekend in September is Father’s Day, and for those of us lucky enough to be Dads, we might get treated to a Sunday roast or maybe lunch at the pub… Good times!
We are often asked about audits: What happens if I am audited? Can I make sure it never happens to me? The reality is that there’s no 100% sure-fire way to way to prevent it from occurring, because you can be selected at random to be audited, though this is uncommon.
You can however, be sure that you’re not attracting undue attention or inadvertently putting up any red flags. We discuss below.
From everyone at CGH Accounting Services – best of luck if you’re shaping up to do some Spring cleaning – and we hope it’s a satisfying and successful season for all.
WHAT CAN ACTIVATE AN AUDIT?
The last thing anyone wants is to be audited by the Australian Taxation Office (ATO). Hopefully this will never happen to you, but there are certainly things you can do in order to ensure there’s no red flags flying at your place that could potentially trigger a tax audit.
OVERVIEW
Unfortunately, the trend seems to be that the ATO conducts more and more audits every year, although that could simply be due to population growth. It has been suggested though, that the ATO has been zeroing in on businesses which turnover between $1 million and $3 million per year. So that would be quite a few of our clients – hence this article. So please – you need to be on the ball. If you are uncertain about anything at all, come to us first before the ATO comes to you.
Generally, your first priority should be vigilance when it comes to accurately recording and reporting all your business transactions. If you do this methodically and meticulously, you should have nothing to worry about. It is true that your name could be drawn out of a hat for an audit, and that is some seriously bogus bad luck. But, if everything’s tickety-boo, it should be over and done with quickly and fairly painlessly – it may take a few weeks at most. However, if they find a problem, it may take a few years, and might be your worst nightmare.
The ATO these days has all sorts of very clever technology with which to gather and analyse data, which is largely how it determines who to target. It can cross reference with all manner of organisations and entities, from the Department of Transport to banks and super funds. The ATO has a very wide net. Some entities are audited due to a ‘tip off’. Nasty!
If the ATO suspects an issue and decides to audit you, it could cost you personally, even if no punitive action is ultimately taken. This is because the process can become quite involved around presenting financial records going back for five years, and this can cost thousands of dollars in some situations.
RED FLAGS
Cashed up
Businesses such as groceries, restaurants, take away shops, small service providers and others who deal mainly or often in the folding currency are on the ATO’s radar – you can be assured of that. You are probably the most likely to be audited, out of the blue. If you haven’t accurately declared income and payments but your expenses, in proportion to revenue are high, this is a red flag.
Dobbed in
Believe it or not, the ATO actually receives thousands of complaints every year, and they take many of these absolutely seriously. With good reason in many cases, for instance when complaints involve businesses who have not been paying superannuation correctly to employees. Whatever you do, don’t let this particular mistake be yours. The ATO will come down on you like a ton of bricks. Tip offs can also come from disgruntled suppliers and competitors too, which is often just simple, old-fashioned malice – yikes! Again, if this happens to you and you get audited – as long as your affairs are all in order – you shouldn’t have anything to worry about. What is the state of affairs with your business affairs? If you have concerns, ask our accountants to have a look-see.
More or Less
The ATO has supercharged databases. They can analyse and compare all manner of businesses around performance, income, expense ratios and just about everything including the sink in your office kitchen. They have benchmarks: their software cross references businesses in the same sectors. If your operation sticks out for some reason, either significantly above or below these benchmarks, for your industry family and species of business, this can be a red flag. They may well suspect a tax compliance issue. Best not to stand out too much from the crowd, as far as the ATO is concerned.
Same-same but different
Is the information you’re putting in this year wildly different to last time? This sets off alarm bells – you know where! This typically triggers ATO anxiety. Especially if there are significant variances in your details around: income tax return and FBT return outlining employee benefit contributions; BAS and payment summaries explaining PAYG withholding and wages; income tax return and sales & expenses. Comprehensive reconciliation processes for returns can ensure that these sorts of discrepancies do not cause problems for your business. Our accountants can assist you with this.
Better late than never
Um, to an extent. But if you persist in tardy reporting with your BAS, tax returns, FBT returns etc., this can trigger an audit.
Other typical red flags include unusual data around company vehicles, consistent operating losses and large fluctuations in sales figures from year to year.
Audit armour
You can protect yourself with insurance – not from actually being audited – but at least from the unwanted associated costs. The premiums are not exorbitant, and you may consider taking out such a policy along with professional indemnity and public liability insurance. Talk to us about the options.
