Australia’s taxation system is complex. To make matters more difficult, the Australian Taxation Office (ATO) relies on a self-assessment system that requires businesses to report their own tax liability.
To ensure taxpayers provide accurate information and comply with the law, the ATO regularly audits these tax returns.
It’s estimated that the ATO contacts about 2 million Australians each year to clarify or review the information provided in tax returns. So, if you’re contacted by the ATO, you aren’t alone, and you don’t need to panic.
While there’s usually nothing to worry about, dealing with the ATO can be confronting, so it’s important to be prepared for the possibility of an audit. In this article, we’ll discuss audits in more detail and find out what you should do if you receive an ATO tax audit notice.
What Causes the ATO to Conduct a Business Tax Audit?
The ATO uses data it collects from businesses all over Australia to assess business tax returns. By cross-referencing tax returns provided by similar businesses, the ATO can determine whether your tax lodgements are accurate.
Each year, the ATO assesses the data and identifies businesses with abnormal tax returns. These tax returns may be subject to a more detailed review. If an ATO review finds a discrepancy or has questions about your business tax return, the review will be escalated into an audit.
The ATO may choose to review or audit a business’ tax return for any reason. However, there are a variety of things that can cause the ATO to review and/or audit your business tax return, including:
- Reports of misconduct
- Failing to report your full income
- Failing to pay employee superannuation
- Failing to pay Fringe Benefits Tax (FBT)
- Incorrectly report employee wages, benefits and superannuation payments
- Claiming tax deductions that similar businesses didn’t claim
- Claiming a large amount of tax deductions
- Exceeding or falling short of benchmarks
- Abnormal income patterns
What to do if You Receive an ATO Tax Audit Notice
Receiving notice that your personal or business tax return is being audited can be daunting. Remember to stay calm before doing anything else.
The ATO understands that mistakes happen. You won’t end up in trouble for an honest misstep. If your business ends up owing taxes, the ATO is also willing to develop a payment plan that suits your situation.
The next thing you should do is:
- Seek advice from a taxation lawyer. It’s always a good idea to seek professional representation when dealing with the ATO. A taxation lawyer can help you assess your situation and the validity of the ATO’s query. From there, you can decide how to respond, and whether you wish to dispute the issue, negotiate an outcome or amend your tax assessment.
Engaging professional help is the best way to navigate Australia’s taxation system. A lawyer can help you reach a more desirable outcome, which can save businesses tens or hundreds of thousands of dollars in tax liabilities. - Review your tax return. Double-check your tax return, deductions and liabilities. The ATO will usually allow you to submit an amended tax return to rectify any mistakes. Small and medium businesses can amend a tax lodgement up to two years after receiving a notice of assessment.
- Gather your evidence. You will likely need to present supporting information during the audit process, such as receipts, invoices, payslips and other financial documents. It’s a good idea to gather your evidence before the ATO requests it so that you can assess your tax and decide how to handle the situation.
- Respond to the ATO’s decision. The ATO will make a decision regarding your audit. You can choose to accept or dispute the ATO’s decision.
If you choose to accept the ATO’s decision, you may be able to negotiate more manageable repayment terms. Negotiating with the ATO can help you to create a repayment plan or reduce your tax debt. You should always bring professional representation to ATO negotiations.
If you feel the ATO is wrong, you will need to provide evidence that your self-assessment is correct. This may involve producing financial records, showing receipts and working with your lawyer to interpret the relevant taxation law. Additionally, you may have the right to dispute the decision in the Administrative Appeals Tribunal or Federal Court of Australia. In either case, you will need professional representation to look after your interests.
Never ignore a letter from the ATO. Failing to respond to a notice may result in fines and criminal prosecution. Your best bet is to contact your taxation lawyer as soon as you receive an ATO tax audit notice.
Navigate ATO Audits with Professional Advice from FP Lawyers
If your business receives an ATO tax audit notice, don’t panic. The ATO audits thousands of companies each year to check the accuracy of tax returns and lodgements. Before you decide how to respond, contact our specialist tax lawyers Brisbane wide.
We are your local business advisor Brisbane wide and can provide professional advice that helps individuals and businesses navigate ATO tax disputes, audits, negotiations and more. Our support makes it easy to deal with the ATO while looking after your best interests.
If you have been contacted by the ATO then get in touch with our team right away. We’ll help you assess your position and decide on a course of action. You can book an appointment online at any time, or call us for a confidential consultation.
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