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Benefits of Tax Audit Insurance

July 14, 2020

If you have applied for JobKeeper or Small Business Disaster Grants you should expect higher levels of scrutiny this tax period.

In recent years, the Australian Taxation Office (ATO) and other government agencies have continued to announce significant advancements in sophisticated, electronic data-matching techniques, resulting in an increase in audit activities conducted by the ATO. The introduction of Single Touch Payroll and SuperStream means the ATO has immediate access to more information than ever. This year, the ATO will also be extending their review activities to include businesses that are accessing the JobKeeper payment scheme to confirm their eligibility.

As data matching and reporting activity increases, so too does the likelihood of you, your business or your self-managed superannuation fund being randomly, or specifically targeted for an audit, investigation or review.

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 500,000 adjustments occurring from audits and reviews during the ’18-’19 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:

  • 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.

Apiary Financial offer a Tax and Government audit insurance policy (underwritten by CGU Insurance Ltd) to help mitigate the costs of an audit or review. 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.

Contact our friendly team for more information and an obligation-free quote today.