Tax Audits: How the ATO Chooses Which Businesses to Evaluate
A tax audit is a comprehensive examination performed by the Australian Taxation Office (ATO) to make sure that a business has fulfilled its tax-related obligations and adhered to the applicable tax law guidelines. This process can involve many checks, including assessing whether a company has properly claimed all of its deductions and declared all its income.
Now, you might be wondering how the ATO chooses which business to audit. You might also be wondering what the entire process entails. As the steps are rather complicated, we will provide a quick overview to give you a better idea.
How does the ATO choose which business to examine?
There are many criteria the tax office uses to select a business to audit. For example, the tax office has a phone number people can anonymously call if they want to make an allegation towards a company that is not fulfilling its tax obligations. This gives the ATO a reason to audit the company in question to check whether the allegations are correct.
Another scenario is when a business owner reports income that is suspiciously too low to support regular personal expenses. This situation is a sign that something might be amiss, and the ATO might investigate to uncover any discrepancies.
One of the ways the ATO determines which business to audit is by using data matching technology. With this technology, they can compare the data reported by the suspect company against other information supplied from different sources, such as banks and government agencies.
That being said, the ATO can decide to visit your company randomly as well. This can come in the form of an undercover tax officer disguised as a customer.
What happens when I get picked for an audit?
If you get picked for an audit, you can expect a phone call or an email asking you to provide different information, depending on what the ATO has been notified to. If further investigation is required, you will need to grant the tax officer full access to your premises, including your documents and records. You can also expect to be interviewed, and generally, more than once.
The ATO has the authority to scrutinize your business and put it through many different tests. For instance, they might run a personal asset betterment test to measure your net wealth over a given time span. They can also contact your banks, suppliers, or even your customers to verify any anomalies and check whether the data they have is accurate.
If you have been keeping your records in good condition, you can expect the audit to complete after about six or so months. However, if your documents are in disarray, the auditing process may last a whole year.
As you might be able to tell, an audit can put a lot of stress on your business. It disrupts your flow and puts you and your employees under a lot of stress. Fortunately, if the tax office is satisfied with your records, your profits will be brought back up, and your tax returns amended.
With that said, the best solution is to prevent the need for an audit in the first place. This can mean reporting all your assessable income, meeting your tax obligations, and using bookkeeping software to document all your financial activities. The more accurate your information is, the less likely you will go through an audit, ensuring your business runs smoothly away from stress.
Are you looking for small business accountants at the Gold Coast to ensure your company is audit-proof? New Wave can offer the services you need to keep all your records and data accurate and up-to-date! Get in touch with us today and see how we can help.