How to mitigate the risks of the ATO auditing your business

The Australian Taxation Office (ATO) conducts thousands of reviews and audits every year to ensure that taxpayers are complying with the tax laws and meeting their reporting obligations.

Having your financial information scrutinised by the tax office can be a nerve-wracking, time consuming and expensive process. Businesses can be on the ATO radar for a number of reasons that we outline below, which makes it critical to understand the ATO’s focus areas and how to protect your business from the financial burdens of an audit.

The ATO uses sophisticated data-matching technology to identify businesses that may not be meeting their tax obligations.

Some key areas of focus include:

1. Cash-Intensive Businesses – Businesses that primarily deal in cash transactions, such as cafes and restaurants, market stallholders and retail stores are closely monitored for underreporting of income.

2. Incorrect GST Reporting – The ATO examines discrepancies in Goods and Services Tax (GST) lodgements, including over-claimed credits and under-reported sales.

3. Work-Related Deductions – Over-claimed or non-compliant work-related deductions are a red flag for audits.

4. Employer Obligations – Businesses failing to meet superannuation guarantee (SG) obligations or not correctly classifying workers as employees or contractors may attract ATO scrutiny.

5. Unusual Variations in Tax Returns – Fluctuations in income or deductions that do not align with industry benchmarks can trigger an audit.

6. Failure to Lodge Tax Returns or Activity Statements – Late or missing tax lodgements signal non-compliance and increase the likelihood of an audit.

Audits are sometimes unavoidable, but businesses can take proactive steps to reduce the likelihood of an ATO review by

Maintaining Accurate Records– Keep well-organised financial records, including receipts, invoices, and bank statements, to support tax claims.

• Complying with GST and BAS Obligations – Ensure accurate reporting and timely lodgement of Business Activity Statements (BAS).

• Using Reliable Accounting Software – Cloud-based accounting software can help track income, expenses, and tax obligations with greater accuracy.

• Meeting Superannuation and Payroll Obligations – Ensure employees receive their correct superannuation entitlements and that payroll tax obligations are met.

• Avoiding Rounding Figures – Exact figures reduce the chance of discrepancies that could raise red flags.

• Seeking Professional Advice – Engage a tax professional or accountant to review tax returns and ensure compliance.

How Can Audit Insurance Help?

Even with efficient compliance practices, an ATO audit can be time-consuming and costly.

Audit insurance can provide financial protection by covering the professional fees incurred when responding to an audit or ATO investigation.

Audit Insurance:

• Covers accountant and legal fees associated with an ATO audit or review.

• Ensures businesses receive professional representation without worrying about expenses.

• Provides peace of mind knowing that compliance-related risks are mitigated, and

• Reduces financial stress by managing unexpected costs.

There are simple steps a business can take to reduce risks of attracting attention from the ATO, including keeping accurate records, complying with tax obligations, and seeking expert guidance.

Going a step further and investing in audit insurance can prepare your business for any ATO scrutiny without an added financial burden.

If you want to know more about safeguarding your business against unexpected audit costs, contact your Hood Sweeney Accountant today to discuss audit insurance.