No business owner looks forward to receiving a letter from the ATO requesting a closer look at the books. An audit often makes people curl up in the foetal position, it invokes fear, stress, anxiety. And the audit hasn’t even started yet.
If you happen to be one of the lucky ones (*subjective view) that receive an ATO audit letter – don’t panic. It is time to prepare, get organised and give them what they want.
These four steps will help you get through the process with minimal stress and the best possible outcome.
1. Respond promptly
If you lodge your tax return reliably and pay on time, there’s a good chance the ATO contacted you for a spot check. Each year they do tend to choose certain industries for these checks. It doesn’t mean that you have done anything wrong.
In this case, all that may be asked is that you provide receipts, proof of purchase documents and answer a few questions. Give the tax office the information they’ve requested promptly so they can close the file quickly, and you can move on.
If an on-site audit is required, you can’t avoid the inevitable. Call to confirm the date and request any information the auditor will need to help you prepare. Ask them exactly what they need. Which invoices, which time period, how many invoices. It helps you collect exactly what they need before the day they knock on your door.
Responding promptly and cooperatively every step of the way is the best strategy for getting through an audit. Reacting defensively or unprofessionally can almost seem like you have something to hide.
2. Seek professional help
Get in touch with your accountant as soon as an audit has been scheduled for advice and support. And if you have been handling the books on your own, now is the time to consider hiring a tax accountant or BAS agent to ensure what you have lodged is correct.
If you are scared about the process, getting professional help before the auditor arrives should give you peace of mind and set you up for a smooth process.
These professionals are also there is perhaps your paperwork is in a shoe box, if you have not lodged tax returns, if you haven’t reported all your income or if you can’t validate how you have lodged BAS or tax returns.
3. Get organised
If there is one bonus of an audit, it will make sure you get your shit together quick smart.
An auditor can ask you to provide receipts that prove you qualify for any deductions you’ve claimed. On the day of the audit, be ready with your paperwork and be prepared to answer any questions.
Being organised and prepared shows you have done your best to report your tax return or BAS accurately. If your papers are in good order, and you don’t raise any red flags, it is much more likely the auditor will wrap up once the audit’s basic requirements are met.
As a word of caution, only provide the auditor with the information they have asked for – no more, no less. Offering more explanation or “proof” in the hope of avoiding further questions may backfire, raising new ones. Stick to specifics.
4. Pay quickly
In the best possible scenario – your records are in order and you’ve been conscientious about paying your taxes – an audit won’t lead to any unpleasant financial surprises.
If, however, an auditor finds that you do owe unpaid taxes (company tax, personal tax or GST), unless you have a solid reason to challenge the auditor’s findings, pay what you owe immediately.
By paying immediately, you will avoid accruing unnecessary additional penalties, interest and fees. Perhaps more importantly, you’ll be able to put the audit behind you so you can get back to focusing on your business.