Be ready for audits

Being targeted by the taxman can be a scary experience, but business owners who take the right steps to prevent it can minimise much of their fear.

The Australian Taxation Office released a guide in August to make it easier for small-to-medium enterprises to understand how its compliance works, a move that has been welcomed by accountants.

The ATO says it will “use the full force of the law” for businesses deliberately not complying but will “make it easy” for those opting to do the right thing – a threat designed to encourage early compliance.

Deloitte’s head of tax controversy, Ashley King says business owners are now better informed about how the ATO goes about checking and reviewing tax returns.

If you are being targeted by the ATO, its first contact is often a letter or phone call seeking extra information. That can then lead to a review or audit of your tax return where a team of ATO experts may “pick it apart”, King says.

“If you know their approach you are better prepared.”

Tax Commissioner Michael D’Ascenzo says this is the first time that the ATO has published detailed information about its approach to tax compliance for SMEs.

“By publishing information on how we assess our attention, we intend to provide more practical certainty for taxpayers,” D’Ascenzo says.

“Risks that attract our attention include things like where tax performance varies substantially from business performance,” he says.

King says if you are in the ATO’s sights, you should first identify the issue it is concerned about and review your tax papers and calculations.

“Seek advice from an experienced accountant or lawyer,” he says.

“It is never too late to ask questions and reorganise your business affairs so that you have greater confidence.”

“Talk to the ATO. Consider making a voluntary disclosure to adjust a tax position you have previously taken.”

“You might receive a lower penalty payment.”

King says business owners must remember that Australia has a self-assessment system.

“This means it’s the responsibility of each small business owner to get their tax return right,” he says.

“Even if you have your tax adviser or a lawyer, you can’t pass the responsibility on.”

“You are always accountable. When preparing your return, you have to be confident in your process and your adviser.”