Red Flags that can trigger an ATO Audit

trigger an ATO Audit



Red Flags that can trigger an ATO Audit


Over the last few years the ATO has enhanced and extended their data matching software. When the ATO processes tax returns they cross-reference the information declared in the returns against records collected from other government organizations such as Department of Transport, Centrelink, Workcover, Superannuation Funds, Banks and Financial Institutions.


Despite honest and detailed declarations, tax payers can still be selected for a tax audit or review by the ATO. An ATO Audit process can involve face to face meetings with the ATO and requests for financial records for up to five years from the date of lodgment. The costs incurred can be significant even if all your lodgments are eventually proved to be correct.


So what are the reasons that trigger an Audit?


Some are random selected, some are triggered by one of the following reasons –


Cash or Hidden Economy
If you receive cash as part of your business activity and don’t declare that income, you will end up reporting expenses that will be proportionately higher compared to your business income. Businesses in food industry such as restaurants, cafes, pizza shops, grocery stores are most commonly affected by this trigger. For detailed explanation on this reason, refer to our tax tip “Cash and Hidden Economy”.


Dissatisfied/Unpaid Employee or Supplier
A tip off from a dissatisfied employee or supplier who complain to ATO regarding their unpaid dues such as salaries, superannuation or bills will attract ATO’s attention immediately. Very often what starts as a review of superannuation guarantee obligations can escalate into a full scale audit.


Performing above (or below) Industry Benchmarks
ATO has a comprehensive list of benchmarks for various types of business activities in Australia. Benchmarks outline average income and key expense ratios for different industries. ATO consistently scans information lodged and if your business reports inconsistent information in comparison with similar businesses in your industry then this can be an indicator of unreported income or other issues. Expert Tax proactively manages this risk by checking our client’s information against ATO benchmarks.
Discrepancy in information lodged on Tax Returns
Large variance in the information lodged with the ATO is one of the most common triggers of an ATO audit. This includes (but is not limited to) discrepancies between:
• an income tax return and an FBT return on employee benefit contributions;
• BAS and Payment Summaries on gross wages and PAYG withholding;
• Income tax return and BAS on total sales and expenses
Expert Tax manages risk by conducting a thorough reconciliation of information lodged for our clients.


Other Triggers
There are other triggers like history of late lodgments, consistently reporting operating losses and unusual fluctuations of trading performance between years. Expert Tax proactively works with clients to ensure these triggers don’t apply to our clients. We discuss these issues with our clients on a regular basis and send regular reminders for lodgment of returns by the due date.


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