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Risky Business: ATO Audits and Reviews

ATO Audits and Reviews

Varun Kumar

In this first edition of our Risky Business Series our advisors look at the risks associated with Australian Taxation Office (ATO) audits and reviews.
 
What is the risk?
The ATO receive substantial funding each year to enhance its data matching capabilities and to expand on their tax compliance programs. The usual question of “Will I be subject to an ATO audit or review?” now gets our usual response of “It’s only a matter of time until the ATO will pick you up if you fall within one of their audit programs”.

The ATO began their “Next 5,000” program a few years ago and these reviews are targeted at high wealth private groups which include individuals who together with their associates (e.g., related entities such as companies and trusts) control wealth of more than $50 million. ATO activity is not just limited to these programs and can commence for any number of reasons (which may be as simple as data matching or falling outside benchmarks for disclosures on compliance documentation).
 
How can you identify and assess the risk?
Be prepared and plan early.  When the ATO commence an audit or review, businesses spend significant amounts of time collating the necessary information and dealing with various issues in what can be a considerably stressful time. As with everything, the more organised you are with documentation and your affairs in general, the less painful the process will be.

The ATO not only look at significant transactions but also review mundane/routine issues such as ensuring resolutions, dividend statements and loan documents have been made correctly and executed within the required timeframes and also whether businesses have complied with their record keeping requirements.
Here are some common issues the ATO have picked up as part of their Next 5,000 program:
  • Loans or payments to shareholders and their associates not complying with the requirements of Division 7A.
  • Using tax losses and capital losses incorrectly including lack of record keeping in relation to carry forward tax losses and capital losses from prior years.
  • Non-arm's length arrangements involving family members or related parties that are designed to reduce or avoid tax that would otherwise be payable.
  • Tax treatment of disposals with incorrect characterisation of property sales on capital account that should be treated as sales arising from a property development business.
  • Mischaracterisation of receipts and / or expenses as revenue or capital.
  • Significant variances, discrepancies and errors in reporting of income and expenses between tax returns and business activity statements.
Some of the above are not particularly complex in nature but taxpayers generally get caught out due to lack of documentation and/or not having appropriately considered a tax position taken in the past.
 
How can a Moore advisor help?
We conduct tax risk assessments for businesses and approach these assignments as a “dummy” ATO tax audit and pick up issues in your files and systems well in advance.  The purpose of this is to highlight risk issues well in advance giving you the opportunity to address the areas of concern prior to an ATO review.

We also highlight key emerging trends and consider whether the business has considered ATO guidance on risks that attract their attention.

Contact Us to find out more about how we can help you.

 
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