If you saw the recent Four Corners investigation into the ATO which alleged questionable revenue raising tactics you may be worried about the exposure your own business might have to review or audit from the ATO. In this article we'll take a look at what the ATO are focusing on and how you can best protect your business and yourself personally from investigation.
To put this issue into context for you, last year the ATO undertook 762,000 of what it calls 'compliance activities' and these include everything from quick reviews of Business Activity Statements right through to full tax audits covering a company's entire operations. These activities raised close to an extra billion tax dollars for the Australian Government and it appears the ATO are set to undertake even more this coming year.
So, what puts you at risk of being audited by the ATO? There are a range of factors that the ATO looks at, some are standard things they look for every year and some are special areas of focus for 2018. These risk factors include:
- Undeclared income and this includes cash earnings not being declared
- Unexplained wealth or lifestyle (e.g. your tax return says you earned $50,000 but you're driving a Ferrari)
- Private expenses being run through your business incorrectly
- Unpaid superannuation guarantee payments (these could even land you in prison)
- Cash-only businesses (especially those that don't conform with industry benchmarks)
- Large and unusual tax or GST refunds
Are any of these risk factors present in your business? If so, it might be time to review your situation and see if any safeguards need to be put in place. It might involve a change in the way your are remunerated, or a change in how your clients pay your invoices or it might simply be a tightening up of the records that you keep so if the ATO does come knocking you've got everything at hand that you will need to explain the issue quickly and easily.
Another thing to be aware of is how time-consuming these investigations can become. It's not unusual for them to drag on for months, or even years, and require a lot of time and stress on the part of the taxpayer regardless of the fact you may not have done anything wrong. This means not only your time but likely the time of your accountant and bookkeeper in getting everything together the ATO requires to resolve the investigation and this can be an unexpected cost for many taxpayers. There is insurance cover you can take out that covers professional fees as a result of an ATO investigation (as well as many other government department investigations) and it's usually not very expensive. Here at Generate we offer Audit Shield cover for all of our clients, but you might also find you've already got some cover under your Directors & Officers insurance - best speak with your insurance broker if you're unsure.
Being on the receiving end of an ATO audit is never fun regardless of whether there is anything 'bad' to be found. It pays to make sure you're aware of the risk factors and be active in reducing those risks wherever possible as well as having appropriate insurance cover in place so that if you do get picked up you'll at least not be out of pocket for getting the professional help you'll need.
Here at Generate we've helped clients out of all kinds of jams with the ATO - overdue returns, unwieldy tax liabilities, audit activity, risk reviews and more - so if you're worried about the tax man knocking on your door, why not get in touch today? We'd love to help.