Successfully Navigating an ATO Comprehensive Review

The Australian Taxation Office (ATO) applies a risk-based approach to ensure medium-to-large private businesses and high net wealth family groups are paying the correct amount of tax. Under this framework, the ATO may select a group for a comprehensive review.

A comprehensive review looks at multiple areas of tax risk and governance across the business or family group and involves ongoing dialogue with the taxpayer. As such, a review is broader and more collaborative than a full audit but is still taken very seriously by the ATO. A primary goal of the review is to determine whether a full, targeted audit is warranted or not.

Why Businesses Are Selected

The ATO uses data analytics, industry benchmarks and risk models to pick taxpayers with higher risk profiles. Selection for a review is certainly not an accusation of wrongdoing but is reflective of factors such as complexity or unusual transactions. Some common triggers include:

• Large, one-off or unusual transactions such as a significant asset sale, restructure or capital gains events;

• Inconsistencies or data mismatches, for example where reported figures don’t align with industry benchmarks or vary significantly from prior year reporting;

• Rapid growth;

• Aggressive tax planning or lack of transparency; and

• Weak internal tax governance and risk controls.

Being selected for review does not necessarily infer any fault as it usually just means that your business structure or a particular transaction stands out statistically.

What to Expect During a Review

A comprehensive review is a structured but flexible process. You’ll typically see the following stages:

• Notification and initial meeting: The ATO will notify you in writing and usually arrange an opening phone call (with your tax advisers present) to explain why you’ve been selected and outline the scope of the review. This is also an opportunity to ask any questions or make a voluntary disclosure upfront.

• Document requests: The ATO will initially request a broad number of detailed supporting documentation. Some commonly requested documents include financial statements, group structure chart, tax reconciliations and working papers, internal governance policies and transaction-specific documentation.

• Ongoing dialogue: The ATO will ask follow-up questions and seek clarification as they progress. They may also fine tune their focus or add to their scope as they work through the information. We typically find that ATO case officers are happy to engage with us to help them better understand the client’s specific circumstances.

• Final report: At the end of the review, the ATO issues a report summarising its findings. This finalisation report will outline any agreed adjustments or recommendations for improvement. If issues are found, you may need to amend past returns or strengthen controls, but if everything checks out, the review closes with no further action.

Best Practices for Navigating Reviews

1. To minimise disruption and achieve a positive outcome, follow these best practices:

2. Ensure your Board and Management have clear, documented tax policies and oversight;

3. Keep accurate and up-to-date tax records. Contemporaneous records and supporting working papers make it far easier to answer queries.

4. Good data controls, audit logs and documented processes in your accounting systems will reduce errors. Look to correct any errors as soon as possible after being identified so that anomalies are not picked up in an ATO review.

5. Involve your accountant or tax advisor right from the notification stage. An experienced adviser can help interpret the ATO requests, prepare the formal submission and negotiate realistic deadlines. Their guidance can clarify complex issues, identify errors and risk areas proactively and present your case in the most compelling way.

6. Open communication, cooperation and honesty with the ATO is key to a successful review process. If you discover a mistake before the ATO does, consider making a voluntary disclosure – it’s viewed favourably and can reduce exposure to penalties.

Key Insight

A comprehensive review is not the same as an audit, but it can lead to one if significant issues are identified.

The good news is that thorough preparation significantly eases this process. By proactively strengthening your internal tax governance, keeping detailed records and seeking strategic tax advice, you will be well positioned for a successful outcome should you be selected for a comprehensive review.

Need Expert Guidance?

Marcus Staker (Director of Accounting & Business Advisory at Hood Sweeney) has extensive experience and a strong record of successfully navigating clients through ATO comprehensive reviews and audits. If your business is selected for review, contact Marcus today for a confidential discussion. You can also visit Hood Sweeney’s website to learn more about our tax compliance services.