How to be prepared for a business tax audit
Posted by Northadvisory on March 29, 2022
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!
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.
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.
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.
Read more Business Tax articles.