How Do Businesses Trigger ATO Audit?

A business owner should pay serious attention to every transaction taking place in the company as tax mistakes can trigger an ATO tax audit. According to the ATO’s compliance program, they are going to be more active in reviewing and auditing practices. It is still possible for ATO to select your company for review despite detailed and honest declarations. When it comes to quick audits, the ATO completes an audit within 28 days. However, if it is a complex audit, the process may take up to 3 to 4 years. The process involves face to face meetings with the ATO and the financial records for up to five years will be requested. You may have proven your lodgements correct, the costs incurred are still considered significant. Being aware of the factors that can trigger ATO audit will not only save you from trouble but also help you develop some positive bookkeeping habits for your business.

Poor Record of Lodging Returns

Record-keeping is essential when it comes to filing tax returns. Compliance obligations are as equally important as lodging annual income tax returns by the due date. Compliance obligations may include employee related reporting, activity statements and fringe benefits. Having a good compliance history can improve the ATO’s perception of your business.

Not Paying the Right Amount of Superannuation to Employees

If you have failed to pay your employees the right amount of superannuation, they are going to complain to the ATO that will trigger a review or audit. The same is true when you fail to pay superannuation on time. These audits are considered a review of superannuation guarantee obligations, but it can also escalate to fringe benefits, GST and income tax audits. When you have not appropriately managed these processes, the ATO will audit your business.

Discrepancies with the Information You Lodged With the ATO

This is the most common triggers of an ATO audit or review. Some discrepancies may include BAS and Payment Summaries on gross wages and PAYG withholding, income tax return and BAS on total expenses and sales and an income tax return and an FBT return on employee benefit contributions.

International Transactions

Your business should also focus on international transactions because the ATO also considers this as a key area of focus. Some examples are transactions with international related parties, materials funds transfers in and out of Australia and transactions with tax havens. These transactions can raise a red flag and one way you can manage the risk is by devising defensive strategies.

Record Keeping Essentials For Business Owners

As a business owner, it is important that you have the right record keeping system so your business can run efficiently. Aside from legal requirements, you should also meet the basic record keeping requirements. There is a plethora of benefits you can reap from complying with these requirements such as strengthening your relationship with staff and customers.

Based on specific laws, there are requirements that businesses secure before setting up a record keeping system. For instance, using an electronic record keeping system requires business owners to produce the record’s hard copy once the Australian Securities and Investments Commission (ASIC) and Australian Taxation Office (ATO) request it.

ASIC also has a roadmap-financial reporting which allows business owner to break down reporting requirements based on their business type. It is also recommended that business owners keep record for 5 years. However, there are records that should be kept for 7 years such as:

•    employee records

•    company’s financial records

•    all records of capital gains and fringe benefits.

As part of the basic legal requirements, the following must be kept:

•    bank accounts including deposit books, bank statements and cheque books.

•    financial accounting program or cash book used for recording cash payments and receipts.

•    employment records including benefits, remuneration, hours of work, overtime, leave superannuation benefits, termination of employment, type of employment, personal contact of employee, employment details and employee’s personal details.

•    sales records including receipt books, invoice books, cash register tapes, credit card documentation, credit notes for goods returned and goods used.

•    Work, health and safety (WHS) records such as chemical storage records, first aid incident register, workplace assessments, Material Safety Data Sheets (MSDS), risk register and management plan, workplace incidents and names of key WHS people.

End of financial year records are also very important and to meet legal requirements, a business owner needs to minimise tax bill or maximise tax return at the end of the financial year.

As a requirement, a business owner needs to keep the following records:

•    a list of debtors and creditors for the entire financial year

•    depreciation details such as depreciation schedule, tax invoices, purchase agreements, installation cost and the cost of transporting the items to your business

•    stock on hand details form the beginning and end of the financial year

•    expense records including receipts, cash register tapes, cheque butts, copies of statements, credit card documentation, payment details and log books

•    agreements such as loan agreement, rental agreements, lease agreements, franchise agreements, sale and lease back agreements, trading agreements with suppliers and legal documentation

•    basic accounting records such as accounts receivable, accounts payable and stock records

•    staff and wages details including employment contracts, tax deducted, sick pay, holiday pay, fringe benefits , superannuation

•    other documents such as contracts with telephone companies, deposits with utilities, business name registration certificate and capital gains records.

Keeping these records for 5 to 7 years is also one of the best practices to follow. Aside from the aforementioned records, certificates and licenses are also important. Make sure you also keep customer records, customer complaints, details of any disputes, employee resumes and job applications, insurance policies, quotes given and won and advertising campaigns and success details.