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ATO Audit Processes – What You Can Expect

Audit

Audit

Cash and Hidden Economy Review and Audits

The ATO use a variety of risk indicators to identify businesses for review or audit because of the possibility they may be engaging in the cash and hidden economy. These indicators include results from data matching, comparisons of business information against small business benchmarks and reports from the community. Based on these indicators, the ATO select businesses for review or audit.

When contacting you, the ATO always take into account the individual circumstances of your business and provide an opportunity for you to explain your personal situation.

Review and Audit Processes

Reviews and audits usually involve looking at your affairs to ensure the information you have given the ATO is accurate and you have complied with your obligations. Reviews and audits are both considered ‘tax audits’ but there are differences between the two as they vary in their complexity. Depending on the complexity, the ATO sometimes need to contact other parties such as banks, employees, customers and suppliers to get information.

Reviews

Reviews allow the ATO to determine whether there are issues that require deeper investigation. The process also allows the ATO to check for any errors so that you can be helped to correct them. The type of review the ATO use depends on their initial assessment. There are two types, a phone review and an office review.

Phone review

A phone review is a short discussion (usually less than 30 minutes) the ATO initiates with you or your tax or BAS agent (or both of you) about what you have reported. This allows the ATO to resolve any discrepancies that they have identified. Discrepancies include what your business has reported to the ATO and information the ATO has collected from a third party, such as a bank or an online auction house. The phone review may result in no further action, or it may escalate to appropriate compliance action such as an audit. The result will be notified in writing and may take up to 40 days.

Office review

An office review is a longer (usually less than an hour) telephone discussion the ATO initiate with you or your tax or BAS agent (or both of you). Initiated through risk indicators, along with the business sitting outside the small business benchmarks. The ATO ask you to substantiate information you have reported on your tax returns or business activity statements. This could include you confirming your industry and providing the ATO with basic information on your record-keeping procedures, practices and controls. The ‘office’ review may result in further action, or it may escalate to appropriate compliance action such as an audit. The result will be notified in writing and may take up to 90 days.

Audits

The ATO conduct an audit if they think you may not be complying with your obligations or do not believe a review can look into the issues sufficiently.

There are five types of audit:

  • Recordkeeping audit
  • Data comparisons audit
  • Correspondence audit
  • Cash and hidden economy audit
  • Complex audit

 

Recordkeeping audit

Identified from various risk factors including strange benchmarks, low business income. The ATO evaluate your record-keeping systems. The ATO will ask you a series of questions and provide you with information on how to keep better records. Outcomes include:

  • take no further action
  • make recommendations on how you should improve your record keeping practices
  • impose a record-keeping penalty for failure to keep proper records
  • escalate your case for a more intensive audit.

Interview process may take 90 days

Data comparisons audit

Identified from a review or from a significant discrepancy between your reports and third party data matching. The ATO compare information received to what you have reported and can substantiate. Outcomes include:

  • take no further action
  • amend your returns
  • impose a record-keeping and/or false and misleading statement penalty
  • consider prosecution.

Interview process may take 120 days

Correspondence audit

Identified from various risk factors including strange benchmarks, low business income or following a review. The ATO review your information against small business benchmarks. Outcomes include:

  • take no further action
  • amend your returns based on information provided
  • issue a default assessment based on the benchmarks for your industry
  • impose a record keeping and/or false and misleading statement penalty.

Phone process may take 120 days

Cash and hidden economy audit

Identified from a review as a business with a high risk of not complying with tax obligations or from various other risk factors. The ATO review information reported and your substantiation of those reports. Outcomes include:

  • take no further action
  • amend your returns
  • amend director or partner returns
  • impose a record-keeping and/or false and misleading statement penalty
  • consider prosecution.

Interview process may take 175 days

Complex audit

Identified from a review as a business with complex tax affairs and at risk of not complying with your obligations. The ATO review information reported and your substantiation of those reports. Outcomes include:

  • take no further action
  • amend your returns
  • impose a record-keeping and/or false and misleading statement penalty
  • consider prosecution.

Interview process may take 250 days

For further explanation, read the Cash and Hidden Economy Review and Audits Guide so you know what to expect if involved in a review or audit.

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