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ATO Audits – Are you at risk?
With the end of another financial year nearly upon us and thoughts turning to our next income tax returns, it is timely to consider what factors may trigger an Australian Taxation Office (ATO) audit.
In recent years, the ATO has implemented sophisticated data matching technology and is better equipped than ever before to scrutinise financial transactions and expense claims. The last 12 months saw significant audit activity and this trend is likely to continue well into the future.
The ATO, together with state revenue authorities, receives information from various institutions and organisations including employers, banks, share registries, other government agencies and more recently from its global information sharing networks.
What can you do to minimise the likelihood of an ATO audit?
Assistant Commissioner Adam Kendrick warns that every return is scrutinised and taxpayers claiming significantly higher deductions than those in similar occupations are easily identified. Whilst there are many factors likely to trigger a tax audit, these taxpayers are putting themselves at increased audit risk.
The ATO advises there are three key points to keep in mind when making a claim for work-related expenses:
- You must have spent the money yourself,
- It must be related to your job, and
- You must have a record to prove it.
In addition, please make sure you declare income from all sources (including interest, dividends and proceeds from the sale of property) both from within Australia and overseas.
As for individual taxpayers, the ATO uses their advanced data matching systems to identify business transactions that may trigger an audit. The following are just some examples:
- Is the financial performance of your business outside industry norms? In particular, if you operate in a ‘cash industry’ and your business is underperforming, you will increase your risk of an audit.
- Are the amounts disclosed in the business’s annual income tax return consistent with those included in Business Activity Statements (BAS’)? If not, the ATO will investigate.
- Do you stay up to date with your lodgement and payment obligations, including Activity Statements? A good lodgement and payment history is less likely to attract the ATO’s attention.
- Are you paying employee superannuation obligations on time? Employees regularly advise the ATO if their employers are not meeting their superannuation obligations. In our experience, a superannuation audit often extends to other compliance areas including income tax, Goods & Services Tax (GST) and Fringe Benefits Tax (FBT).
- Is your business regularly recording losses? Although these may be legitimate, the ATO is more than likely going to investigate further.
The above factors are not exhaustive, but simple ones worth getting right to minimise your audit risk.
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