What is an ATO audit, and what triggers it?
If you’ve never been subject to an audit before (which is most of us), you’d be forgiven for not really understanding what an audit entails. Simply put, an audit is when the ATO singles out your personal or business taxes for closer scrutiny.
They can be triggered if the ATO notices that the numbers don’t add up:
- Failure to declare income.
- Improperly claiming deductions.
- Your lifestyle not matching your nominal income.
- Alternatively, it could be in response to a voluntary disclosure.
Generally speaking, it usually entails a close look at your affairs to ensure the information you’re reporting to the ATO is accurate and compliant with your obligations. During an audit, the ATO may also get in contact with third-parties such as employers, banks and suppliers to verify information. While it certainly sounds scary, we want to stress that ATO audits aren’t an inherently bad thing!
Ultimately, the purpose is to ensure that everyone is paying their fair share of tax – if it turns out that you’ve over reported your tax obligations, an ATO audit may actually leave you with more money in your pocket!
What happens during an audit
ATO audits typically come in two phases:
- Risk review
A risk review determines whether there are any compliance issues with your taxes.
Typically, this doesn’t go very deep – the ATO understands that most cases are honest mistakes, and will help you correct them. But say that your review comes up with certain errors, issues or discrepancies, that triggers a full audit. Audits are a more comprehensive investigation, intended to unveil underpayments, and non-compliance. However, like we mentioned above, audits can also be triggered when the ATO identifies cases where you’re paying too much tax – it isn’t all about tax evasion!
What the ATO needs from you
What makes audits so stressful for most of our clients isn’t the fact that they’re being audited – the vast majority are completely above board. Rather, it’s the time investment that puts them on edge. The ATO prefers working with the subjects of audits. You may have to sit through multiple phone calls, meet an ATO agent in-person or spend hours rifling through past receipts, records and documents.
On top of that, the ATO may request unfettered access to your property and records – no wonder audits are such a huge cause of stress! Speak with I Merhi & Co today to make this process as seemless as possible.