As Data Matching advances, Tax Audit Insurance is more important than ever
September 1, 2021
As the new financial year kicks into gear, it’s important to set yourself up for success by putting measures in place to protect your business and personal interests. In recent years, developments in data-matching technology have allowed the ATO to increase their scrutiny of taxpayer reporting and undertake more audits. Tax Audit Insurance can provide you with protection that minimises the risks of an audit.
What is data-matching?
The ATO has a number of systems in place to match the details provided on your tax return to the information provided from other sources. The ATO cross-checks information reported in tax returns against over 650 million transactions provided by third parties.
Banks and financial institutions, health funds, superannuation funds, Centrelink, Workcover, online selling platforms, property records and motor vehicle purchase data and cryptocurrency service providers are just some of the external sources the ATO use for data matching. As better data becomes available from more sources, the ATO is expanding its data matching to also include areas such as:
- Capital gains from the disposal of shares and property
- Foreign source income
- Income from payments made by Government agencies
- Partnership and trust distributions
- Employee share schemes
Increased use of advanced analytics and automation has led to increased review and audit activities for individuals which resulted in over 450,000 adjustments occurring from audits and reviews during the ’19-’20 tax year.
What else can trigger an ATO audit?
There are a number of factors which can increase the risk of, or even trigger, an audit:
- Accessing JobKeeper payments.
- Performing outside industry benchmarks.
- Disgruntled employees complaining that their super has not been paid correctly – what may start as a review of superannuation can quickly escalate into a full audit of income tax, GST and fringe benefits tax (FBT).
- Large variances in information lodged with the ATO e.g. variations between the information reported on an income tax return and your business activity statements, FBT return, PAYG Summaries etc.
- Consistent operating losses.
- International transactions – any material transactions (over $10,000) with international parties, especially if those parties are related entities, affiliates, or any entity located within a tax haven, are monitored by Austrac and can attract the attention of the ATO.
- History of late lodgement – the ATO actively monitors all compliance obligations, including, but not limited to, BAS, FBT and employee-related reporting.
- Being in the spotlight – The ATO monitors media and social media outlets for reports of major transactions or disputes.
- Being on the ATOs ‘hit list’ – You or your business may be in an industry or sector that the ATO has decided to focus on in a particular financial year.
What does a review or audit involve?
Reviews and audits generally involve the ATO looking at your affairs and requesting supporting documentation in relation to the amounts reported to them, to ensure the information you have provided is accurate and that you’ve met your compliance obligations. A review allows the ATO to determine whether there are any issues that require further investigation. An audit is conducted by the ATO when further or a more detailed investigation is required.
How long will the audit take?
An audit or review can take anywhere from a few weeks, to several months, or even years to be effectively resolved, and can result in significant costs and disruption to you and your business.
Engaging a professional, such as your accountant, to manage the response process on your behalf can minimise the disruption to you, assist with achieving an expedient resolution of the matter, and potentially reduce the likelihood of further enquiries.
What costs are involved?
Responding to a review or audit request can incur significant professional fees. If a legal representative is required, the costs can be much greater. Even matters with little complexity, or with no adverse outcome, can be time consuming, stressful and expensive.
How does a Tax and Government audit insurance policy help?
The tax audit insurance policy offered by Apiary Financial is designed to provide an affordable and effective solution to cover the cost of professional fees (up to a prescribed limit) should you, your business or your self-managed superannuation fund be subject to a random audit, investigation or review.
What does the policy cover?
The policy covers a broad range of reviews (for current and prior year lodged returns) including, but not limited to:
- ATO Income Tax audits & reviews
- BAS audits and enquiries
- Workers Compensation
- Centrelink
- FBT
- Payroll Tax
- Self-Managed Superannuation Funds
Apiary Financial can help
At Apiary Financial, we recognise that the time, effort and costs involved in our staff responding to audit matters on your behalf can be substantial, and a drain on your business resources. With this in mind, we have implemented a Tax and Government Audit Insurance Policy, underwritten by CGU Insurance Ltd, in which we invite our clients to participate. Our Tax Audit insurance policy premium is a tax deductible expense, and can save you thousands of dollars in professional fees should you be targeted by the ATO.
If you elect to partake in this service and you are then subject to an audit or Government review, this policy will cover our professional fees (up to a prescribed limit) for any audit activity related to current, and previously lodged, returns. The cost of the policy, which is determined by your turnover category, includes a fee payable to Apiary Financial to recover some of the costs of providing this service to you.
This policy is offered on an opt-in basis. If you would like to get an obligation-free quote or have a question about participating in this service, please contact our friendly team on (07) 3217 2477.
Further information regarding policy inclusions and exclusions is available for download here: