How to Prepare for the Dreaded ATO Audit
It seems as if tax season is always just around the corner, and if you are a small business owner you may worry from time to time about getting an audit by the Australian Tax Office. Even though you may consider yourself to be very stringent when it comes to rules and records, it can still be a worrying time and involve a fair bit of disruption to your routine. What do you need to consider in a "just in case" scenario?
Going through an audit like this is rarely a straightforward situation, but the more organised you are and the more systems that you have in place, the better. It's also a good idea to have a team of experts on your side, with accountants that understand your line of business and have their own experience in dealing with the ATO.
What can trigger an audit request? Typically speaking a request like this can be automatically generated by complex algorithms employed by the ATO. It could be that something in your financials has triggered a red flag because the figures deviated from what is typically accepted as normal in your industry. In other words, the ATO computers are expecting a certain range of figures, and yours have fallen outside. Rarely, a disgruntled former employee or client may pretend to be a "whistleblower" and suggest to the ATO that they audit your business.
What You Should Do
It almost goes without saying, but the best line of defence is to ensure that all your records are accurate and up-to-date. Many small business owners put off completing their books until they really have to, and then they find that they can't remember the details and may have mislaid a few receipts. Make sure that you declare all of your income and that you're unequivocally entitled to the credits or deductions that you claim in your paperwork. One way to ensure that your bookkeeping activities are simpler is to buy one of the many software products available, and several of these help you to keep up with your tax obligations as well.
Keeping the Records
Remember that you're supposed to keep all your documents for at least five years, just in case an audit is called for in the future. If any of these are missing, then the auditors can make their own assumptions, which may not be a very good scenario for you.
Do You Need Insurance?
Finally, it may be a good idea for you to take out tax audit insurance, and you should ask your accountant whether this is relevant in your case or not.