Should You Be Worried about a Tax Audit?

The Australian Tax Office is always complaining about the shortfall in the amount of taxes collected, compared to their overall target. From time to time they signify an intention to launch tax audits in a bid to recover underpaid or unpaid taxes. Is this something you should be worried about?

Overseas Activities

Certain "high risk" businesses or activities do have an elevated chance of being audited as the ATO starts to flex its muscles. For example, if you have overseas operations as part of your business then this can elevate your chances. Primarily, they are looking for proof that the business has been structured correctly, and this is not simply a way of moving funds offshore to escape Australian taxes.

Investing in Property

If you're involved in property investment this could be area for investigation. The tax office is doing a lot more these days to match data they collect from other government departments as well as banks and share registries, in order to correctly evaluate those investments.

Industry Specific

Certain industries will periodically come in for investigation. For example, the tax office claims that significant amounts are being incorrectly claimed by small businesses in the construction and building fields, in relation to travel.

What You Need to Do

If you feel that your operation may be at higher risk of audit by the government then there are certain "best practices" you need to adhere to.

To ensure that you are always in compliance when it comes to reporting, the business activity statement (BAS) must be filed with the government before the due date at all times. Also, you need to ensure that these returns are correct when they are filed. Certainly, if you do get the odd notice that there was an error in your return this is not the end of the world, but if they have to continue to send such notices it's likely that you will be flagged for an audit as well.

Remember, the tax authority has a significant amount of data gathered from businesses similar to yours. If it appears that you are claiming large refunds through your GST return that are out of the ordinary or higher than average, this could trigger an audit.

Getting Assistance

Whether or not you are in a "high risk" activity it's a good idea to get a professional accountant to help you when preparing returns and keeping records, so that mistakes are kept to a minimum or avoided altogether. If you have compiled reports yourself, it's a good idea to get them independently audited.