Playing a straight bat may avoid a costly loss to the ATO
Playing a straight bat to anything the Australian Tax Office (ATO) may bowl up to you won’t guarantee a successful outcome, but it’s always your best option.
Never more so that now. Doing the right thing by the ATO doesn’t mean you or your business are any less likely than anyone else to be contacted by a taxation officer in the course of the current drive on tax debt (see our 24 September news report ATO’s drive on debt and compliance – the ATO is owed some $20bn). But if it’s your number that’s called, remember, eyes on the ball and a straight bat.
Though every receipt, invoice and relevant diary entry has been retained for the record, every BAS statement properly presented, this won’t lessen the chance of a random tax inquiry. Which is why it’s called “random”.
So, if you’ve even a shadow of doubt that somehow you feel you might not have fully met your tax obligations, it can be infinitely better to check with your accountant before the ATO decides to check with you.
Tax reviews and audits may occur in various ways – by phone, in correspondence or face-to-face – but Macks Advisory’s advice is always to undergo the process side by side with your tax agent who will know the best way to resolve an issue.
Listen to the coach. Now is not a good time to start swinging wildly.
An insight into the process
Even with a clear conscience and confidence that you’ve done the right thing, a review or full-scale audit can be stressful. Almost invariably, a review will involve several rounds of queries. Maintain a long-term focus. Think Test Match.
However, your selection for this process is not an indication, not even an implied ATO suspicion that you or your business has done anything wrong. So long as a tax officer’s requests and queries are appropriately accommodated, matters can be resolved without amendments or penalties.
Where approaches from the ATO aren’t completely at random, it’s because either you or your business could be indicative of something abnormal within an industry. Certain activities or transactions could then attract the attention of reviewers.
Where a lot of business can be done in cash, for example in cafes, hairdressing salons, in many trades, owners of such businesses are likely to attract ATO scrutiny.
Macks Advisory’s recommendation to these people is to study the ATO’s website which provides useful industry-related benchmarks, so that if information provided on your tax return is wide of these marks you’ll know you’re likely to be red flagged for questioning.
Seek good advice early
If you suspect you or your business might attract ATO interest, then it’s likely that the sooner you get professional advice the better.Why on earth would you elect to bat on a sticky wicket?
There are of course good reasons why a tax return may be abnormal. Thus there’s every good reason why, if this is so in your case, that you get assurance from your accountant that the abnormality is justified and that you’re ready to explain your figures and the reasoning behind them should a taxation officer come calling.
It’s highly probable ATO concern will be triggered at the sight of a BAS lodgment that features an unusually large refund. This refund claim could be perfectly legitimate, arising, for example from the purchase of a large piece of equipment. In this instance a review usually follows soon after lodging the BAS, so that if this sort of thing happens to you and you’re not ready with acceptable answers to ATO questioning, expect a substantial delay in getting your refund.
Preparation will also involve having ready to hand valid tax invoices for all purchases before lodging your BAS, and if you’re registered for GST on a cash basis, ensure payment for the equipment was made during the relevant BAS period.
With all records in order expect a trouble-free review.
Capital gain and other matters
The ATO takes particular interest in issues related to capital gain, especially where a SME taxpayer seeks to take advantage of “main residence” and other concessions. This is why, if your tax agent is on the ball, you’ll be questioned thoroughly about this matter during preparation of your tax return. If you’re smart, you’ll answer the agent’s questions, carefully and comprehensively.
When you’ve done the right thing with your tax return, it’s unlikely the ATO will want it amended. But bear in mind reviews and audits can be time consuming – especially for example in having to produce detailed responses to queries. You may therefore consider it worthwhile to take out relatively low cost tax audit insurance to cover the cost of professional fees possibly necessary in the compilation of this information.
If you know something’s wrong in disclosures (or lack of them) made to the ATO, one of the main reasons we urge you to contact the ATO before the ATO contacts you, is that it’s empowered to charge you a penalty up to 100% of any shortfall.
Righting a known wrong before being quizzed by the ATO can completely eliminate such penalty. If you offer to correct your tax return at the start of a review or audit, penalties can be substantially reduced.
Be all that as it may, the truth is that anyone trying to avoid paying their fair share of tax is trying to shaft fellow Australians – and that’s simply not cricket.
For more information, contact Macks Advisory on 08 8231 3323 or visit our office at our new address from 1 December 2015 at West Wing, Level 8, 50 Grenfell Street, Adelaide SA 5000.
