You probably know that we started offering audit insurance a few years ago.   We could see the trend of the ATO increasing the number of audits/reviews each year, either due to concern over the industry (history of 'cash only'), an anomaly over KPI's (eg., GP not high enough, so cash must not be reported), selection based on data matching (over 800M transactions in 2018), or from public tips and dob-ins (a whole new ATO department set up for public information provided).

A report has just been released showing claim trends over the last twelve months, and you can see claims are made not only for 'Tax'.

Employer Obligations (20% of Claims)

The most frequent claim, due to problems in payroll reporting and superannuation payments.

Super Guarantee

The unpaid SG by employers is increasing.   Even with STP commencing this year underpayment is a big concern from previous years.   With STP requiring super contributions to be reported (compulsory from October 2019), those not paying will be quite obvious, which may also be taken as an indication of previous year lack of compliance.   Further, super is now a personal responsibility for directors and the ATO will issue Director Penalty Notices (for which there is little defence).

BAS Reviews (13% of Claims)

Have decreased slightly, probably because of the closer attention given to Employer Obligations.   Often starts with a request to see the 'GST Detail Report' from XERO (or the software used), compared to the lodged BAS, and then to supporting invoices and bank statements.   If not satisfied with the Quarter, the audit is usually extended to the whole year.

Payroll Tax (12% of Claims)

This is a State based tax, and also considers grouping, contractors, employees in other states (the thresholds vary), and director remuneration.   Data sharing with other agencies (like Workcover) often raises red flags.

Personal Income Tax (9.5% of Claims)

Covers a vast array of ATO audit activity, especially due to data matching, expense claims made, the level of income reported (below basic standard of living), and lifestyle & income.

Work Related Expenses

The ATO has an extensive data base on expenses based on occupation, and returns are also cross referenced with what other taxpayers are claiming.   The ATO will often ring employers and ask if the expenses are necessary for the job, before contacting the taxpayer for evidence of the claims, like invoices, receipts, bank statements and seeking justification for the claim.   It must be a cost of the job and not a personal choice (eg., home office use).

Audits cost you money a) to respond to the request for information and can become more complicated and costly if the ATO is not satisfied, b) to pay the tax, plus penalties of up to 100% and interest too, and c) can even result in criminal prosecution if the behaviour is serious.

We can say with a fair amount of certainty that the agencies will continue to find new and innovative ways to verify returns.   As long as reviews and audits remain prevalent, a good course of action is to have Audit Insurance.   These can be offered through insurers, and we recommend Audit Shield Insurance.   For a few hundred dollars a year at least the professional costs are covered.   Audit Shield is renewed in February each year, but can be started at any time.   Call us if you would like to know more about this.