WHAT IS OUR AUDIT SAFE OFFER?
In the event of an ATO (or other Government department) audit, it can be time consuming and frustrating dealing with the questions and requirements.
Our Audit Safe offer allows you to engage us to deal with the ATO for free.
We note that unpaid taxes, fines, interest, or anything else is still your responsibility.
DO I NEED AUDIT INSURANCE?
Government departments rarely do random audits these days and instead rely on data to categorise people and businesses into risk categories.
If you are honest and pay your fair share of tax, then the chances of getting audited are quite slim.
On this basis, most people don’t need audit insurance – and the truth is that we’ve never said to a client that they need his service.
But what many clients have said to us is that they love the peace of mind it brings, knowing that if they make a mistake that their accountant can fully manage the process without worrying about how much it is going to cost.
Peace Of Mind
FREQUENTLY ASKED QUESTIONS
Our Audit Safe offer covers the following types of audits, as long as they are initiated after the policy date (i.e. you can’t get a letter from the ATO and then get Audit Safe and expect to be covered):
- Income Tax;
- GST/BAS;
- Fringe Benefits Tax;
- Compulsory Superannuation Payments;
- SMSF’s;
- Payroll Tax;
- WorkCover;
- and more.
Yes and no.
Our job is to take the information you provide us, and do your tax return in accordance with the Law. That means not claiming things you can’t, and making sure that if you get audited, you will be OK.
But that doesn’t mean you won’t get audited… the ATO don’t ring us up and say “we’re thinking of auditing client x, should we?”. Your tax return can be 100% OK and the ATO can still audit you.
As highlighted earlier, the Audit Safe offer isn’t to cover ATO penalties (which you do pay an accountant to help you avoid), it is to cover the fees and time involved in dealing with the audit (and we suggest you have a read of the case study below which will highlight this).
Normally audits are targeted as a specific part of your tax return or business. Rental properties, unpaid superannuation, cash takings (that are not on your tax return), and the first step is usually a letter with a series of initial questions and information requests.
If you provide the info requested and it all checks out, the audit often stops there.
But think about what is on your tax return. Do you have records and receipts for EVERYTHING? If the ATO audited you, can you easily answer these questions and provide invoices for every expense you are asked about?
The answer is almost always no, which means audits usually continue past this initial questionnaire.
Absolutely.
While dealing with an audit can be time consuming and difficult, the ATO (and other Government departments) aren’t monsters. They communicate with you and let you know what they need, they give you time to collect the information, and they are understanding (they are still human after all).
Unless you own a business, dealing with an audit is mostly a matter of forwarding your documentation.
If you own a business, it can be trickier because the ATO will want reconciliations and calculations of how things were worked out – and not just copies of invoices. This is where you may need help. If you have a bookkeeper, they are hopefully keeping everything reconciled and can produce these. Often we find that we are required to assist with this part of an audit – but it can be done yourself if you have good record keeping and have a clean set of books.
Something we need to be clear on – engaging your accountant to help doesn’t mean you don’t have to do anything. There will be tasks that we simply cannot do for you.
Think about collating your invoices for example. How do we forward copies of invoices to the ATO without your involvement?
What you can do however is simply hand over your shoe-box, your folder, or whatever you are storing everything in and we can have a look through it for what the ATO are looking for. If something is missing, we’ll tell you (and again, finding those is something we can’t really help with).
But we can manage the process. We can do all the communicating with the ATO. We know what to say and how to say it (and importantly, what not to say).
A REAL EXAMPLE
We had a client picked for audit based on the following factors:
- Travel records (that the ATO were able to obtain) indicated that our client was a frequent traveler, being overseas for half of the past 2 years;
- Income levels on their last tax return suggested they could not afford this lifestyle; and
- The client’s business was showing losses on their tax returns (again pointing to whether the client could afford this travel).
There are many legitimate reasons for the above, including:
- Wealth accumulated over years and they decided after many years of working to reward themselves;
- Using the proceeds from an inheritance (which are generally not taxable and not reported to the ATO);
- Redraw on their personal mortgage / borrowed to fund overseas travel;
- Work related travel;
- and many more.
The ATO didn’t consider any of these, and didn’t even bother asking the question “how can you afford this?” – they just went from data-matching to audit.
But The ATO Were Wrong…
When we asked our client, they informed us that they had only been overseas for 2 weeks in the past 2 years, a family holiday to a popular holiday destination.
We informed the ATO, who looked into it and days later replied with “oh, we have matched the wrong person’s travel records with your client”.
But the audit did not stop… Because the audit had been commenced, they ATO insisted on seeing it through.
The Audit Was Relentless
Our client’s business has a multi-million dollar turnover and the ATO went through EVERYTHING. You would think that when auditing a business of that size that you focus on the large items to gauge the business before deciding whether not to do do a full-blown audit.
We were being asked for years of reconciliations and documentation for items as small as $147.50.
We wrote the ATO one day with a simple “it will be costing the ATO more in wages to find out about $147.50, let alone costing our client more than the possible penalties – our client is willing to allow the ATO to deny this deduction and move on”. The ATO still insisted we do all the work.
Our client – who was incorrectly flagged for an audit to start with – was being punished because the ATO officer involved did not want to admit their mistake and go to his manager saying he started an audit on incorrect grounds. Instead, they wasted many days on it and ultimately it felt like the ATO officer therefore needed to find problems with our client’s business to justify the time spent.
THE CASE FOR AUDIT SAFE
Our client was subjected to the most rigorous audit we’ve seen because of an ATO error. We did everything we could to stop the ATO audit, but because the ATO have the right to audit anyone regardless of the grounds (i.e. they don’t need a reason) – once started it can only be stopped if the ATO officer is satisfied.
This client did not have Audit Safe (or audit insurance) and was not capable of dealing with the ATO’s questions on their own. We spent over 100 hours on the audit, and our fees ended up being over $20,000.
This is the kind of thing that Audit Safe is invaluable for. Don’t say it can’t happen to you, because it can. You can be an honest hardworking person and still end up in the middle of an ATO audit.
