Audit ?

Do you or your business earn Cash?

Could you be selected for an Audit?

The ATO use a broad range of indicators to identify taxpayers for reviews and audits.

They use data matched from other government agencies and suppliers, including state government registration records of cars and boats, financial institutions and trade suppliers.

They also use tax returns and activity statements to identify taxpayers who appear to be spending beyond their means and may be failing to report all their income.

Data matched from external sources is compared with the lodgment and income history of the business. It is also compared with the information provided by similar businesses to identify taxpayers for potential compliance activity such as an audit.

During an audit or review they often contact third parties to gather information about the taxpayer. The types of data they collect include credit card records, overseas travel, bank account details and overseas money transfers. They may also contact customers and suppliers of the taxpayer to request.

EXAMPLE:

Ned, the owner of a small painting business visits his tax practitioner to discuss his annual tax return.

Ned's tax practitioner notices Ned's reported income is low when compared to other similar businesses. To bring this to Ned's attention, the practitioner suggests that Ned complete a comprehensive personal living expenses worksheet covering his family, their income, assets and expenses.

Ned lives with his wife in a home they paid off 10 years ago. They have 3 children - the youngest lives at home, while the eldest lives in a property they purchased with an interest only mortgage.

Using his business and personal records, Ned completes the worksheet and records a household income of $28,800 for this year. The family's expenses are $78,000.

As Ned's household outgoings exceed his recorded income by $50,000, he needs to look at this records and be prepared to explain the difference if he attracts the ATO's attention.

In the course of an Audit, if Ned could not fully explain the $50,000 difference by producing suitable evidence, they would re-assess his income to a higher figure using information from what Ned gave them about his business and from information from his suppliers and customers.

Ned would have to: