Small business audits on the way

If you haven't been contacted in some way by the Australian Taxation Office (ATO) in the last six months for a small business audit, benchmark audit, cash economy audit, employer obligations audit, work related deductions audit, you're an ever decreasing minority.

The ATO has advised that it is upping the ante in relation to its field audits of small to medium enterprises ("SME"s).  With an alleged additional budget of $4 million dedicated solely for these audit teams in the next six months, expect SME field audits to become part of business as usual.

Initial phone contact is often being made direct to the client, without the ATO notifying us, your Tax Agent, first.  It can be a scary and confronting conversation between you and the ATO Audit Officer if you are unsure what your obligations and rights are.

Small business benchmark audits are when the ATO compare your business to data collected from other businesses in your industry to judge whether you are under or over reporting income and expenses.  They target industries where they feel there is a "cash economy" that isn't getting reported and therefore is not getting taxed.  In a speech made mid last year, the Tax Commissioner remarked that the ATO found that approximately 90% of businesses in benchmarked industries fall within a benchmark ratio.  In practice, we at BBA find that there are many valid reasons why a business may NOT fall within the benchmarks, and have been successful in liaising with the ATO on behalf of our clients to resolve these matters when such an audit occurs.

In light of this trend and continued increased funding to the ATO's audit programme, we strongly advise that ALL our clients take out Tax Audit Insurance.  You can find more detail about Tax Audit Insurance here.