The case for ‘audit insurance’ is a complex and ever-growing issue. Andrew Toumazis reports.
A recent and explosive article in the Australian Financial Review published July 23, 2011 and titled ‘The Tax Detectives’ showed how vulnerable many people can be to the audit activities of the Australian Taxation Office (ATO), even though they have or haven’t done the right thing or met their business or personal benchmarks and cost of living statistics.
Most businesses may come under some sort of scrutiny in some form, either at a local, state or federal level. This could be as the article explains, any time and on any level, and the basis could be GST, personal deduction, business benchmark, cash basis or just an industry under the spotlight.
The ATO has spent up to $800 million of taxpayers’ money to develop a real time scrutiny on many levels, search parameters, Google variables, for example. This can search various data every 24 hours or so.
By using this, their 300 elite fraud squad personnel can review several links at once, evaluate a taxpayers position in real time and start the ‘please explain’ process before a taxpayer knows what’s happening.
If a person is processed for a review (which politely means an audit of some kind) then their records may be exposed on any one of these levels.
They can initiate a review that may go back several years or just to the last completed BAS or tax return.
In the first three weeks of the 2011 tax year, the new system in full operation has potentially uncovered up to $85 million in incorrect returns. This compares with a total of $105 million for the whole of the last tax season - a mighty and very, very efficient effort by them, particularly when there is a lot of checking to do with over 12 million individual taxpayers and in excess of 3 million ABN registered businesses.
Many business clients and indeed individuals have played ‘Russian roulette’ and taken a risk at being found out or identified for non-compliance. In the past this bravado has been based on the argument that the ATO is under-resourced and doesn’t have ‘the know how’ or the smarts to check and identify in a timely and efficient manner.
Not any more - the big brother computer system is watching you closer than ever before and the real time issues can undo the most clever of any non-compliant person or business.
In fact, the ATO says that many accountants are simply not taking any risk at all with shallow based clients. That is a good thing overall with a fair broad tax that once collected will hopefully mean a benefit to all of those taxpayers who are doing the right thing.
Some of the traditional hit list of people and businesses will never waiver and seem to pop up every year.
These include – cafes, restaurants, small to medium sized building businesses and contractors, taxi drivers, and an abundance of retail businesses and generally those businesses that deal with cash based systems.
The audits will pounce on record keeping - BAS payments, PAYG payments, ‘non-existent’ employees, non-payment of super, non-registration of payroll tax and workers compensation insurance, and general buying patterns of such business owners, which means, do they own expensive cars, do they go on regular holidays, does their income match their general lifestyles and so on.
Many accounting firms are now assessing and reviewing their procedures to make sure that all clients fit in with the general statistics and benchmarks that the ATO have set in motion.
After all, if this is done for the greater good of the country (providing the government spends the extra tax collected wisely), then as a society we should be better off and the good guys will have a moral victory, including their accountants who have shown them the way with good advice.
In summary what this all means is that if you are selected for a review then your precious resources are exposed. This can take time and effort and can cause stress. Therefore the purpose of having some ‘audit insurance’ in place is to take as much pressure off these resources so you can concentrate on your business affairs.