Ten Ways To Trigger An ATO Audit
Paul Simon told us that there are fifty ways to leave your lover. Today we will look at ten ways to trigger a tax audit; or perhaps better explained as ten ways to avoid the tax man going through your financial life at great expense and with huge psychological damage.
The following is a list of the ten most likely ways in which you can trigger the tax man to undertake an audit of your affairs.
1. Pay employee superannuation incorrectly.
Until recently this was almost universally started by an employee complaint to the ATO that their super fund reports were not in accordance with their pay records. In turn, this employee was either unusually diligent or it happened after an unamicable parting of the ways. In short, most employers who did not do the right thing continued to get away with it. However, with the advent of Single Touch Reporting, the ATO will now have virtual real time information. As they also receive vast amounts of data from superannuation funds the ATO will be able to match that information. This ability will give the ATO a ready-made “shopping list” for audits. Payment of employee superannuation is a major policy feature of both major political parties. The days of superannuation being a discretionary item in the cashflow are over.
2. Finance results that are not in keeping with your industry
The ATO has industry benchmarks for many industries and they will apply these against your tax returns. Any major variance will cause an enquiry. The benchmarks are publicly available on the ATO website.
3. Get publicly reported
The ATO scour the media for reports of big transactions. If a report of a big sale is made (this could be a business or even the family home) in any of the media you can expect a polite query from our ATO friends.
4. Poor compliance record
The ATO know that there is a high correlation between poor lodgement and payment and under reported income. If you are a perennial late lodger, don’t be terribly surprised if you get a knock on the door.
5. Discrepancy between tax returns and activity statements
If you have poor accounting practices it is not difficult to create discrepancies. If you don’t reconcile BAS’s to annual accounts you will never know. We see a lot of letters from the ATO observing that employee PAYG is underpaid caused by a variance between BAS’s and annual PAYG reporting. Strangely enough, we have never seen a letter advising that is was overpaid. In the same way failure to reconcile can also indicate understated income.
6. Consistent losses
If you report losses year after year this can cause a tax review. If your lifestyle is inconsistent with the losses you can anticipate questions.
7. Own cars and don’t lodge Fringe Benefits Tax returns
If your business owns a motor vehicle and you don’t either:
• Lodge an FBT return or;
• Show employee contributions
you are effectively saying that the vehicles in question are 100% business. That is rarely the case and the ATO knows it.
8. Have a lifestyle that is inconsistent with reported income
Like large asset sales, the ATO also look for people with high public profiles and expensive lifestyles. They will check back against state registries for high value motor vehicles boats and aircraft. If you reported income is at odds, you will face questioning.
9. International money transfers
The ATO via AUSTRAC monitors overseas payments as a matter of course. Regular payments, dealings with know tax havens and large amounts are all flags for checking.
10. Year to year fluctuations
If you have income that varies widely from one year to the next over a several periods, this can be seen as an indication of poor record keeping.
Many of the items listed above are innocent and explainable. But if your records are such that a quick explanation is not available you can reasonably expect a deeper dive into your life. The above should be treated as routine checks by your accountant.
Call Warren Maris on 07 3483 0100 if you would like to discuss your affairs in more detail.