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Audits loom as ATO steps up activities

The Australian Taxation Office (ATO) is employing new technology and more staff to increase its audit and review program to levels never seen before.

During the course of the year we have seen a dramatic increase in the number of audits and pre-audit reviews and while the majority of these actions result in no further action, they are nonetheless distressing and time consuming when they occur.

There is not much you can do to avoid this activity-literally if you are in the tax system at some level, then there is a good chance you will have some level of review from the ATO. But to be forewarned is to be forearmed, so we have prepared this overview of the current audit program that the ATO has published so that you might be able to reflect on your situation and ensure your number comes up.

Small business benchmarks: The ATO uses benchmarks to identify businesses that fall outside expected limits and will almost certainly be short listed for review. For example the ATO has advised that there are 46,000 businesses they have identified that are potentially under-reporting their cash income. The first step in pursuing these discrepancies is for the ATO to contact tax agents to identify any particular reasons for this. Depending on the industry, location and nature of the businesses, the ATO will then move on to a further level of review.

Cash economy: The ATO will continue its focus on businesses and work with tax practitioners and industry and professional associations to identify and share best practice in record keeping. This is a soft approach from the ATO designed to educate businesses and provide them with feedback – you can be assured that this will escalate in the future.

Employer obligations: About 20% of the Australian workforce was employed by micro enterprises last year. As employers they withhold and pay about $14 billion in pay as you go withholding on behalf of their employees. The ATO will review more than 3,400 small-to-medium businesses to ensure that they are reporting the correct PAYG withholding tax, including contracting arrangements.

In addition, the ATO plans to focus on superannuation guarantee obligations. The ATO has confirmed that it will investigate all complaints about employers not paying superannuation for their employees - they have around 12,500 complaints predominantly on this issue which have not yet been followed up.

Business activity statements: With approximately nine million business activity statements lodged by micro enterprises each year, the ATO expects to verify over 47,000 refund claims this year. In addition the ATO is seeking to expose unregistered preparers and registered agents who have prepared fraudulent statements by referring them to the new Tax Practitioners Board.

Work-related expenses: Deductions for work-related expenses are one of the largest categories of claims made in tax returns, having increased by about 16% since 2007. This year, the ATO will be focusing on claims across a variety of industries for example:

•    real estate employees

•    carpenters and joiners

•    earthmoving plant operators

•    flight attendants

Self-managed superannuation funds: At 31 March 2011, there were over 445,000 funds in operation. This year the ATO will focus on:

•    newly registered funds

•    funds lodging their first annual return

•    auditor contravention reports

•    related-party investments

•    exempt current pension income

•    re-reporting of contributions and compliance with excess contributions tax release authorities.

It is good business practice to be fully aware of the compliance requirements and to make sure you are on top of them. If you have any concerns or queries, please do not hesitate to speak with your Phillipsons accountant – and don't forget that we can arrange an audit insurance policy for you, your business and your family. Ask us about AuditAssure if you want peace of mind, and certainty of costs when the ATO comes knocking.

For more information on the ATO's 2011-2012 compliance program go to: http://www.ato.gov.au/corporate/content.aspx?doc=/content/00284023.htm&mnu=47063&mfp=001