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ATO Audits: Can They Be Avoided?

 

The word ‘audit’ can send chills down the spine of small and medium-sized business (‘SMBs’) owners.

But why do ATO audits happen?

Is there anything you can do to avoid them?

 

Are There Risk Factors for Getting Audited?

 

A commonly-held view is that the self-employed (in particular sole traders and family partnerships) are more likely to be chosen to be audited, as such businesses typically do their own accounting and reporting, instead of going through an accountant.

Additionally, the self-employed are more likely to blend their personal and professional assets and obligations (often out of necessity).

However, this is not the case.

The ATO applies the same standards to the self-employed as they do to SMBs and large businesses.

The ATO has a sophisticated set of benchmarks, algorithms, and data-matching technology (comparing figures against those obtained from, say, Centrelink) that flags ‘unusual’ events or activity

 

Am I in Trouble if I Get Audited?

 

The ATO selects who is to be audited from ‘unusual’ activity, and in the interest of transparency has provided a list of potential factors on their website.

Among the factors are illegal activity – transactions or tax outcomes that are ‘inconsistent with the intent of the tax law’.

However, other more innocuous factors are included, such as large one-off transactions, ‘aggressive tax planning’, and economic performance that is not comparable to similar businesses.

This means that businesses who make sudden changes to their tax planning, make sudden purchases, or simply have a good year, might ‘trip up’ the ATO’s data matching and benchmarks, and draw the ATO’s attention.

The ATO’s attention might also be attracted via inaction – i.e. if a business ignores information-gathering requests from the ATO or otherwise acts in a way that doesn’t comply with the expected conduct regarding tax laws.

There may be tax law or Corporations Act conduct breaches that you simply weren’t even aware of.

 

Can You Avoid an ATO Audit?

 

Short answer?  Not really.

Once the ATO has decided on a target, the most you can do is ensure that you have everything you need on hand, such as receipts and other documentation.

It is also important that you are open and honest with the ATO and their investigators, and respond to any requests for information promptly.

The ATO has vast legislative powers available to it if there is a reasonable suspicion that an individual or business is not meeting its tax obligations.

For this reason, it is important to get legal advice quickly if you suspect you may have difficulties meeting your tax obligations, or if you otherwise have any concerns about the ATO audit process and powers.

 

Contact Us

 

For more information, contact us at Bambrick Legal today. We offer a free, no-obligation 15-min consultation for all enquiries.

You can also read more about our taxation law services here.

Related Blog – Final Notice to Lodge ATO

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