How to navigate an ATO audit
The following questions are those that I have been asked by individual and small business clients subject to audit.
What happens if I ignore the ATO audit letter?
Typically, the ATO will adjust your income tax assessment to reflect the information they have. For example, if you do not respond to an audit in relation to work related expenses you will more than likely have those deductions removed and the ATO may apply penalties.
If you have inadvertently missed an ATO audit, due to changing addresses and not telling the ATO for example, this can be corrected by objecting to the audit decision. I recommend getting professional advice prior to lodging an objection.
Can I get more time to respond?
Typically, yes. If you need more time to gather the information, then the ATO may grant you an extension of time to respond, but you must communicate with the ATO.
How long do I need to keep my evidence after lodging my return and getting my refund?
Most ATO audits are conducted prior to your refund being issued, or within approximately two years. Although, there are many exceptions to these general time frames.
Should I get on the phone and have a good conversation with the ATO auditor?
As much as I would like to say that getting on the phone and discussing your issues with the auditor is effective to clear up misunderstandings, it is not a good strategy. Keep your verbal conversation brief and your written communication clear.
What are my rights?
The Taxpayers’ Charter is an ATO publication which describes, amongst other things, what you can expect from the ATO if you are selected for a review or audit. For example, the ATO must conduct reviews and audits in an impartial, fair, reasonable and professional manner.
Will I go to prison?
If you have made an honest mistake, you will not go to prison. While some people receive criminal records for tax related offences, almost all do not.
Will I always be subject to penalties?
No, not always. If you have made an honest mistake and have a good compliance history, you will most likely not be subjected to penalties. This will depend on many factors, including your tax knowledge, your actions during audit, and what the tax shortfall is in relation to.
Will I have to pay my accountant to represent me during an audit?
This depends on whether you have audit insurance, whether you have chosen to represent yourself, or whether the accountant offers their services for free during audit as a part of your initial tax return fee.
It is prudent to be upfront with your accountant and make a risk-based decision at the outset of an audit. Even though an upfront voluntary disclosure may not give you the most ideal tax outcome and force you to concede on some points, it may work out to be the most economical way to resolve the audit.
If an audit is completed and I disagree with the decision, is there anything else I can do?
Yes, an objection can be lodged if you disagree with the audit decision. You may disagree with the way the law was applied, or you may just want to supply more information to change the decision.
Disclaimer: This document should not be interpreted as tax advice. All information is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
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