In Australia, our tax system is underpinned by self-assessment. This means taxpayers are responsible for lodging accurate tax returns that comply with tax laws. The information provided to the Australian Taxation Office (ATO) in returns is initially accepted as true and correct, and a tax assessment is issued on that basis.
Revenue agencies conduct audits of taxpayers’ affairs, which are usually intensive examinations of the taxpayer, their transactions, and how they meet their tax obligations. Many of these audits involve using compulsory notice powers to obtain information, documents, and rights to interview individuals under oath.
Common tax audits in Australia look into the following areas:
Once a tax return is lodged and the taxpayer receives their assessment, the ATO will typically undertake data analysis to confirm the information declared in the return is correct. Based on this analysis and other information the ATO receives, such as dob-ins and tip-offs from the public or tax profession, they may conduct tax reviews or an audit.
There are countless intricacies involved with ATO audits, and the ATO has dozens of Practice Statements and Rulings for them. The taxpayer’s rights are also included in the Taxpayer’s Charter.
As discussed, the onus is entirely on the taxpayer to ensure their return complies with taxation laws. You must show all accessible income and only claim deductions and offsets you are entitled to. If you’re unsure about entitlements or inclusions, it is your responsibility to check by conducting research, asking the ATO, or obtaining advice from a registered tax advisor (eg. tax agent) or lawyer.
If the ATO decides to audit your return, you need to understand your rights and responsibilities. That way, you can respond to the ATO’s information requests without falling into traps. As a taxpayer, you have the right to use tax agents, accountants, and tax lawyers to obtain tax audit advice. You are also entitled to guidance for the subsequent objection and appeal process. If you’re facing a tax audit, don’t hesitate to contact the team at Tax Controversy Partners.