How to be prepared for a business tax audit
Business tax audit… three words that have the ability to strike fear into the hearts of business owners everywhere.
Having the ATO go through your accounts is a daunting thought, and even if you have been operating your business for decades, it can still make you nervous.
“What will they find? Will I be hit with additional bills? I hope I’ve done everything right!”
We understand that the prospect of an audit can be overwhelming, but it doesn’t need to be.
If you have robust systems in place and keep your accounting records up to date, it can actually be a smooth and easy process.
By following some of our tips, we are sure that you can stress-less and be prepared for anything!
“No business owner wants to go through the stress of a business tax audit — but there is a way to make sure you are prepared should it happen.”
What is ATO's audit focus?
To help alleviate some of the anxiety around a business tax audit, you can start by considering what the ATO will be looking for.
Every year there can be slight changes to the ATO’s focus, depending on what is happening across the country.
For example, in FY20/21 there was a lot of attention paid to how businesses rolled out JobKeeper payments, as this was a key financial stimulus from the government.
This year, it is predicted that the ATO will be looking at employer obligations such as the Superannuation Guarantee (SG). Data they collect from Single Touch Payroll (STP) reporting provides them the information they need to determine who they might target.
In addition to employer obligations, it’s likely that the ATO will also be focusing on cryptocurrency and share transactions. In 2021, they contacted ‘around 100,000 taxpayers who had traded in cryptocurrency and prompted 140,000 taxpayers at lodgment.’ So, it’s important that you understand the capital gains tax implications of crypto and trading.
Accurate records
Knowing what the ATO is focusing on is helpful, but the best way to be prepared for a business tax audit is to make sure your accounting records are top notch.
There’s nothing worse than being told you will be audited and realising you need to fix a year’s worth of accounting!
Ideally, you want to use a cloud-based system, as it will make your day-to-day financial management much easier.
Cloud accounting software, such as Xero, is always up to date with Australian tax regulations and will help you manage transactions and keep you on top of compliance.
Implementing good accounting practices such as regular reconciliations, scheduled payroll, superannuation payments and other processes will make sure you are already in good shape should your business be selected for audit.
“Using a cloud-accounting system helps you keep digitised versions of all documents and reduces paperwork — making audit preparation simpler and less stressful.”
Remember to archive
Most ATO audits focus on the most recent tax return, but an auditor might go back previous years if they think there’s a possibility of understated income.
So, it’s essential that you remember to maintain your archive.
Keep all relevant business finance documentation for at least five financial years so that you can support any claims.
This is again where a cloud accounting system can be beneficial, because you will be able to keep digitised versions of the documents and reduce your office paper consumption.
Fix your mistakes
Sometimes mathematical mistakes are made in business tax returns… especially if you are manually completing them.
Applying the incorrect percentage, adding figures from different columns… it’s possible to end up with inaccurate calculations, so it’s wise to go over your numbers before you submit your documentation.
But if you do identify an error, make sure you fix your mistake quickly. If you can highlight the issue at the beginning of your audit, it could help save you from being penalised.
Specialised business accountant
Here at North Advisory, we understand that a business tax audit might feel ominous, but our team of specialised accountants is here to help.
We can support you by implementing processes that streamline your accounting and reduce your stress. If you’d like to find out more about our business accounting services, please contact us today.
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
Preparation Reduces Stress
A business tax audit doesn’t need to be overwhelming — well-organised, up-to-date accounting records make the process smoother and less stressful.
Know What the ATO Focuses On
The ATO’s audit priorities shift over time, so understanding current focus areas — like employer obligations and digital asset transactions — helps your business stay compliant.
Cloud Accounting Helps
Using cloud accounting systems keeps data accurate, accessible and easier to reconcile, which aids both day-to-day management and audit readiness.
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Frequently Asked Questions
What is a business tax audit?
A business tax audit is when the ATO reviews your tax returns and financial records to check accuracy and compliance with tax laws. It’s not something to fear if your records are well-kept.
Why might the ATO audit my business?
The ATO selects audits based on changing compliance priorities and data insights — for example, employer obligations, such as the Superannuation Guarantee, or transactions like cryptocurrency trading.
What should I have ready if audited?
You should maintain accurate accounting records, including reconciliations, payroll data, and archived documents for several years — ideally stored in a cloud accounting system.
How far back can an audit go?
Although most audits focus on the most recent tax return, the ATO may also review previous years if it suspects understated income or discrepancies.
What if I find a mistake before the audit?
If you identify errors in your returns or calculations early, fix them quickly and disclose them – this can reduce audit stress and potentially limit penalties.
How can I prepare for a business tax audit in Australia?
North Advisory explains that the best way to prepare for a business tax audit is to keep your records organised and up to date, ideally using cloud accounting systems so documents are digitised and easy to access. They also recommend checking your tax return carefully for errors and fixing mistakes early—because identifying issues upfront may help reduce the risk of penalties and make the audit process far less stressful.
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Don’t hesitate to contact us if you’re ready to streamline your financial management with tailored solutions. Your business’s success is our primary focus. Fill in the contact form or call us to book an initial 30-minute chat.
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