Worried about potential audits? Find out how to reduce the impact of tax audits on your business
The data matching abilities of the Australian Taxation Office (ATO) and other government revenue authorities is rapidly increasing. With these new capabilities, the chances of getting audited (even if you are doing the right things as a tax payer) are much higher.
So if you are concerned about the risk of tax audits, then there are some key mistakes you should avoid to reduce your chances of being audited. Even if you haven’t done anything wrong, late lodgements, payments or inconsistent data may increase the chance you will be audited.
Common mistakes businesses make that can trigger audits
1. Poor record keeping
Maintaining accurate records is crucial for businesses to ensure tax compliance. The ATO conducts regular reviews and audits to check for proper compliance and appropriate record keeping by businesses. There are some common mistakes made by businesses that increase the likelihood that your business will be chosen for an audit or review. There are some actions you can take to reduce the risk of your business being chosen for a tax audit.
Are you guilty of these common record keeping mistakes?
If you are making these mistakes, your risk of being chosen for a tax audit will increase.
- Failure to record cash income and expenditure
- Neglecting to account for personal drawings
- Errors in reconciliation of takings to banking
- No record of goods taken from stock for own use
- Failure to meet Fringe Benefit Tax (FBT) requirements
- Failure to keep accurate point of sale records
- Inadequate stock control procedures and no stock takes
- Failure to keep receipts and invoices
- Irregular banking procedures combined with insufficient documentation
- Failure to issue receipts
- Motor vehicle expenses: inadequate distinction between private and business use, lack of accurate records and logbooks
By avoiding these common mistakes and implementing proper record keeping practices, your business can ensure tax compliance and minimise audit risks.
Take the necessary steps to address these areas and come talk to us at Pretium Solutions where we can help you set up better record management systems. Read our blog about recording keeping requirements for business or learn about expense management tools like Dext, a real life-saver for keeping your business records in order.
2. Not lodging on time
Even if you can’t pay your tax debt right away, it is important to lodge your returns and business activity statements with the ATO. Not lodging on time increases your chances of getting audited. Stay up to date with lodgements and make sure you communicate with the ATO if there are any issues you are having.
3. Not keeping up-to-date on superannuation guarantee obligations
With the rollout of Single Touch Payroll, the ATO can see when an employer has been late paying superannuation to staff, or when they haven’t paid at all. This is a big red flag and can trigger a review which may result in a tax audit.
4. Not keeping up-to-date on payroll tax obligations
The data matching capabilities of the ATO are able to pinpoint differences between payroll tax returns and wages declared to the tax office through Single Touch Payroll and your lodged activity statements, which can trigger the start of a tax audit.
Tax audit insurance
Many businesses choose to have tax audit insurance which provides payment for professional fees incurred if you are audited. We provide the offer of Tax Audit Insurance to our clients. To learn more about audit insurance, check out our information on Audit Shield.
We talk to Rod Spicer from Audit Shield about common audit triggers and the benefits of audit insurance in our business podcast. Check out our short video below:
Are you ready to get your business obligations and record keeping in order (and hopefully avoid a tax audit)? Then take the first step and contact us.