One of our small business clients was randomly selected for a comprehensive ATO tax audit. The audit was part of the ATO’s new tax GAP program to help identify taxpayer under reporting, dodgy tax agents and build intelligence for audit profiling. To be honest it was one of the most comprehensive audits I had seen in 25 years.
The audit was part of the ATO’s new tax GAP program to help identify taxpayer under reporting, dodgy tax agents and build intelligence for audit profiling. To be honest it was one of the most comprehensive audits I had seen in 25 years. This client has a few entities with some interaction between them but not crazy large figures and otherwise relatively typical of a small business taxpayer.
The initial documentation request was extensive to say the least. The ATO wanted all receipts, invoices, bank statements, software data, point of sale data, pay slips for staff for several years. Now like most people this client has a busy schedule and the prospect of getting this data together was daunting. Potentially a few weeks work alone which he didn’t have. So this is how many team member solved the problem.
Step 1: He effectively negotiated a reduction in the initial scope of the audit and documentation. Now persuading a senior ATO audit to start with a lesser data set takes some skill and solid reasoning. Mission accomplished which significantly reduced the time and cost burden on the client.
Step 2: He kept the auditor informed of progress regularly and ensured the data was provided promptly with clear explanations and robust legal justification for any contentious items. Again this is harder than it may seem because we were dealing with a range of different tax law (income tax, GST and FBT).
Step 3: Acknowledged a few minor items and on the clients behalf accepted accountability for those. The ATO’s win amounted to about $150 which was written off as immaterial by them.
The most important step not listed above – The work was done well and done correctly in the first place. We tell clients “no” when it will put them at an unacceptable risk. We ensure the appropriate documentation and workpapers are kept by us and the client. We don’t get involved in “dodgy” practices because our value is best demonstrated when the chips are down.
Moral of the story is that protracted random ATO audits do happen. If you don’t do it correctly in the first place and don’t have the right team helping then it can be a painful and potentially costly process.
And here is the final statement by the ATO auditor that we are most proud of
……”Also, as part of tax gap project, earlier this week I was asked to present the case to senior leadership group to disseminate learnings gained. Overall, feedback from the leadership group was very positive for the client as well as your practice which led to correct reporting of income, expenses and tax payable for all the entities examined as part of this audit. Practices like yours help us to draw on your insights and expertise to understand factors positively influencing client behaviours and business practices leading to correct reporting and compliance. Thanks for your co-operation, support and prompt action during this audit process.” – Senior ATO Auditor Sept 2019