ATO reviews and Audits

I’ve received an audit letter from the ATO – what do I do?

All entities – individual, partnerships, companies, trusts and super funds can be reviewed or audited where there is concern by the ATO on the preparation of tax returns. With more data-matching capabilities and ease of access to information, the ATO is able to identify undisclosed income or unusual transactions faster than ever before. Most audits by the ATO are received following unsatisfactory responses during an audit.

An audit can range in time and depth – some audits will just require a brief examination of source documents, and other audits will require intensive analysis of complex arrangements and transactions.

What is the audit process?

Initial meeting

Generally the audit process swill begin with an initial meeting to discuss the scope, period under audit and expected completion date. The ATO will provide information on how the audit will be conducted, explain the voluntary disclosure process, and set expectations. Following the discussion, an audit plan will be provided, which includes contact details of the case officer and a manager.

During the audit

During the audit, you will be asked questions, asked to provide documents and asked to provide explanations for arrangements or transactions. Based on the information provided, the ATO will keep you updated on their risk hypothesis. In some situations, the audit scope or period under audit may be expanded.

Where you are cooperative with the ATO in their requests, it is usually unlikely that their formal information gathering powers are used. The ATO’s formal powers -Information gathering powers – are separated into two categories: notice and access powers. These formal powers may be used where the ATO needs access to:

• information held by a third-party
•  where you do not have access to the information
•  situations involving potential tax avoidance
• where you are not cooperative
• where you request the ATO uses its formal powers to obtain information

Finalising the audit

The ATO will usually provide a position paper prior to finalisation that outlines their position and gives you an opportunity to respond. The position paper sets out:

• available facts
•  issues
• contentions
• ATO’s application of the relevant law to the facts
• details of proposed assessment arising from the audit
• details of who to contact to discuss the audit

Where appropriate, alternative dispute resolution processes are available.

Following any responses you provide to the position paper, the ATO generally proceeds to finalising the audit outcome by providing you their decision in writing. A final meeting is offered to discuss penalties and interest that may be imposed in addition to the amended assessments.

What should I expect following an audit?

Where the ATO comes to the conclusion that you have incorrectly prepared your taxes, you will be assessed on:

• Shortfall tax
• Shortfall interest charge
• General interest charge
• Penalties – which are charged at 25%, 50%, and 75%. Where there is continued errors over several financial years a penalty uplift may be imposed.

How can Tax Controversy Partners help you?

Firstly, it is important that you consider your position and the specific information you are required to provide as part of the audit. Obtaining legal advice is important, as lawyers are able to guide you through the stressful process and inform you of your obligations. There are many financial documents that may be protected by Legal Professional Privilege or the Accountant's Concessions.

At Tax Controversy Partners, our experienced lawyers can represent your best interests during an ATO audit and minimise administrative penalties that may be imposed.  Please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 851 3813.