Do you own a business? Do you want to avoid having an ATO tax audit?
ATO tax audits are generally carried out by the Australian Taxation Office when some warning signs appear within your business operations. The ATO takes these changes VERY SERIOUSLY, and generally takes initiative to make sure your business is operating legally under business and tax laws.
The key to reducing the risk factors of an ATO audit is by knowing the common triggers which initiate the audit in the first place. Businesses have to try and reduce these warning signs to stop the ATO from raising any eyebrows about your business practices. By demonstrating the best practices within your business you will have a lower risk of triggering ATO tax audits to begin with.
Top Warning Signs Which Can Cause An ATO Audit
- Slow At Lodging Your Tax Return – Businesses which fail to turn their tax return, tax liability payments and other compliance obligations in on time have a higher risk of triggering an audit. By working on complying with compliance deadlines you will improve the ATO’s perception of the business and will reduce the overall audit risk.
- Not Lodging An FBT Return When Owning Company Motor Vehicles – The ATO generally receives data from motor vehicle registries from both the states and territory about any vehicles which have been purchased by the business. The ATO then matches these purchases with any information reported in the tax return, fringe benefits, and activity statements with exception of some private use. If your business doesn’t lodge an FBT that covers private use or fails to include employee contribution fringe benefits in the tax returns income section, an audit will likely occur soon. Be sure to keep a log of your vehicles travel kms to help keep track of its use.
- Disclosure Items Are Wrong in your Tax Return – Making a mistake in the disclosure items can cause your business to be flagged for an audit. This is because the tax return is one of the main ways for the ATO to gather your business information. There are internal checks in the disclosures and returns which are verifiable against ATO or publically available information. If you get the disclosures wrong on your tax return, it will most likely end up in a call from the ATO.
- Having International Business Transactions – A key focus area for an ATO audit is international transactions. Transactions with tax havens, international related parties, or any material funds transfers both in and out of Australia are great examples of ATO audit warning signs due to the suspicious nature of these transactions. One of the best ways to manage this risk is by implementing defence strategies which can include transfer pricing documentation. Both small and large businesses are both at risk for an ATO audit with international transactions and should seek professional advice if they’re unsure about legal international transactions and the ATO.
- Be In The Paper – Although having publicity, is good, it can also be a risk with the ATO. If you’re in the paper for something wrong, it can easily bring your business to the attention of the ATO. Major transactions with high value assets or disputes which are reported are generally reason for the ATO to trigger an audit. This is were a public relations professional can be utilised to minimise the harm to your company.
What else can you do?
In some cases, you may be able to take out audit insurance. Audit insurance is designed to help pay any additional costs associated with an ATO audit or other audits that your business may succumb to. This helps to minimise large costs to help save you and your business money.
In order to reduce your risk of an ATO audit you need to keep up to date with any tax related profits or losses. Being in business isn’t as easy as some may think, however by knowing some of the warning signs and red flags associated with an ATO audit you have a better chance of reducing your risk by minimising these red flags from occurring. Are you going to change your business’s operation to help minimise a ATO audit from occurring?
This post was written by Anita Ferguson. Anita is a well versed content manager who specializes in the management and delivery of professional content for numerous websites in many industries. She has many years of experience in content management and holds top degrees in her industry. She’s committed to her work and delivers only the very best when working with her clients. She believes in an honest working relationship and will guide her clients in the right direction for a successful content strategy outcome. She currently writes for Balancing Books website.
Originally published April 19 2016 , updated August 4 2017