How to Be Best Prepared for an ATO Audit


Did you know that the Australian tax authorities have become very sophisticated in recent years and have some cutting-edge software solutions that help them to pinpoint anomalies? Their aim is, of course, to raise as much money as possible and to make sure that all small business owners are paying their fair share. This means that a tax audit may become increasingly likely if your organisation is unusual within your industry or triggers some of those digital "red flags." What can you do if you get a dreaded letter from the ATO concerning an audit?

Why an Audit?

Many small business owners wonder why they have been singled out by the authority for a tax audit. Typically, this could be down to an outlier, as triggered by that software algorithm, or a report by a disgruntled individual. In the latter case, somebody may have sent in a report to alert the tax authority to your organisation if they were disgruntled (as in the case of a former employee) or had some other type of axe to grind. It's unfortunate, but this type of whistleblower scenario does generate a tax audit even if it is proven to be groundless or, in other words, unfair.


As you can see, you may be singled out for a tax audit even if you are doing everything by the books, so you should always be as prepared as possible. If your organisation is unusual by industry standards, then you need to keep exemplary records and be able to justify all of the actions that you take.

If you do happen to trigger a disagreement with an employee or a former partner that may lead to a whistleblower report, the same principles will apply. Make sure that your affairs are always in order and that your tax calculations are accurate. Keep your records for a minimum of five years and make sure that they are fully detailed with accompanying notes, if necessary.


You may also find it advantageous to take out some tax audit insurance, especially so if you are in a potentially "high risk" category. This will help you to pay for the associated costs and fees so that you don't have to pay for those expenses out of pocket.


Above all else, bring on board a good tax agent who is knowledgeable in your industry and has experience in dealing with an ATO audit. If you do get a letter from the authority to notify you of an audit, bring in this expert straight away. They should be your first point of contact with the government, and they will be able to help you move forward towards a successful conclusion.


25 March 2020

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