Want to be prepared for your upcoming tax return procedure? It pays to have an informed understanding of the process and know exactly how to reduce your risks.
At Taxology, we assist our clients, from individuals to businesses, across Australia in managing and responding to ATO audits, from initial notice through to final resolution. But to get you started, we’ll share a few tips to help you with your tax audit in Australia.
What Is a Tax Audit?
A tax audit involves a detailed examination and investigation of your financial records and tax returns over the past year to ensure accuracy and compliance with Australian tax laws. There are several types of tax auditing activities carried out by the ATO, including:
- Risk reviews
- Compliance checks
- Comprehensive audits
Each one varies in scope and intensity and needs to be tailored for each individual. The ATO’s goal is to identify any underreporting or errors in your tax return audit and apply fair corrections where compulsory.
How Many Tax Returns Are Audited?
You might wonder, “How many tax returns are audited each year?” While the ATO doesn’t publish exact figures for all audits, around 1-2% of individual tax returns are typically reviewed annually. Businesses and high-income earners are more likely to face scrutiny. You can save your time and effort by reaching out to a team like Taxology to make the tax return process easier for you. Our tax experts are here to optimise your tax position and help avoid an ATO tax audit with professionally prepared tax returns.
What Triggers an Audit by the ATO?
Some triggers that may result in an audit by ATO include:
- Significant or unusual deductions
- Mismatches between your return and third-party data (e.g., banks, employers)
- Late lodgement or amendments
- Reporting consecutive losses over multiple years
By knowing these triggers and what types of taxes are applied, you can stay within safe boundaries and avoid exceeding any tax audit limit that might draw attention.
What to Expect During a Tax Audit
If you’re selected for an Australian Taxation Office audit, the ATO will contact you with details about what they’re reviewing and which records they need. This could include:
- Tax returns and amendments
- Invoices and receipts
- Bank statements
- Business activity statements (BAS)
- Employment and payroll records
Remember that it’s essential to reply promptly and ensure all legal documentation is accurate and completed with honesty. It’s also advisable to double-check with someone aware of your financial situation and legal regulations.
How to Minimise Stress and Maximise Compliance
Dealing with a tax audit can be overwhelming, so try to avoid it by following best practices. It also pays to be proactive in preparing and storing your records, so if an audit does happen, you can face it confidently. Here are practical steps you can take:
1. Maintain Detailed Records
Accurate and well-organised documentation is your first defence. Keep at least five years’ worth of tax records.
2. Lodge Correct and Timely Returns
Late or inaccurate lodgements are a red flag. Always double-check your returns before submitting.
3. Seek Professional Advice
Engaging a qualified tax consultant early, especially one with audit experience, has a great impact and legal differences. Contact Taxology for personalised audit support to make your tax season easier.
4. Cooperate with the ATO.
If ATO contacts you for an audit, provide the requested documents on time and be honest in all communications. Transparency goes a long way in reducing audit duration and penalties.
5. Understand Your Rights
If you disagree with an audit outcome, you definitely have the right to request an internal review or lodge a formal objection. Seek expert guidance to navigate this.
We’re Here to Help
Whether you’re currently undergoing a tax return audit or want to prepare for the possibility, the expert team at Taxology is here to support you. We help individuals, businesses, and trusts navigate audits, objections, and compliance checks.
Explore our full range of tax services or get in touch today for confidential advice.