How well are you sleeping at night?

We might ask this question again at the end of this article.

But first, let's start with some trivia to see if you even need to read this article.

• Do you know how many pages there are in the Income Tax Assessment Act 1936?
• How many Public Tax Rulings are there and is there one specific to your industry?
• As a director how many pieces of tax legislation do you have to comply with?
• What does Clause 221YHAAC(2)(e)(iii)(A) of the Tax Act stands for?

How did you go?

 

As your tax agent we can help you with:

• Preparation and lodgement of your tax return.
• Interpretation of the Income Tax Act.
• Interpretation of the other tax legislation relevant, including international tax legislation if you are trading with overseas companies.
• Allowing taxpayers access to special lodgement extension deadlines.
• Keeping all of your tax receipts and other documents in the one place.
• Keeping a copy of your tax return for the 5 years as required by the ATO.

 

As a tax payer you are responsible for:

• Providing us / the ATO with all of the information in your tax return.
• Ensuring you have disclosed all of the income you received and can support all of the expenses you are claiming.
• Confirming the purpose of your loans and the interest claimed on them relates to income producing assets.
• Liaising with your tax agent to ensure you have signed all of the declarations as required by the Tax Act.

 

A simple salary and wage earner return is pretty easy but when you are in business and have different legal entities, plus borrowings which are often cross collateralised with one or more banks, complying with all of the tax legislation is a lot of work.

 

Consolid8 recommends that a taxpayer considers the following questions at least annually:

• When was the last time you checked every amount in your tax return to ensure it was assigned to the correct code?
• Do you have any interest that you are claiming for a property but not receiving arms-length income for that property?
• How are you handling any interest on borrowings that are cross collateralised with other assets?
• Do you have receipts for every expense claimed?
• Was the entity name on the invoice the same as the entity that paid the invoice?
• Do you check every creditor ABN against the http://abr.business.gov.au/ ABN Lookup to see they are actually registered for GST that they are charging you?

 

The reality is that for the past 4 years the ATO has been investing in significant programs, staff changes and computer system upgrades to link together a whole host of information sources.

 

The ATO serves an important function and without taxes Australia could not prosper. The ATO have some excellent people and some excellent systems and even if you do everything by the Tax Act you can still come up for a tax investigation / audit. Some audits are random, some can be an anonymous tip but most are generated by algorithms within ATO computers based on new 'taxpayer risk profiles' the ATO is building up with the benchmark data they are collecting on individuals and businesses.

 

Our experience at Consolid8 is that some taxpayer reviews / audits by the ATO can go on for 2 to 3 years and involve a number of face to face meetings with the ATO. These reviews / audits often involve a number of written requests for further information from up to 5 years prior. Some ATO investigations are for a single transaction where they investigate the GST or Capital Gain involved with the sale of a business and other investigations involve your whole group of companies and entities. Rarely do these investigations happen right after the event. Often times you are being audited many years later and you might have even changed accountants.

 

So how is your memory and how was your record keeping? As a Client of Consolid8 we have extensive file storage of records for each of our Clients and we have a range of checklists to assist with ensuring full and transparent disclosure is made to the ATO. However the cost of a tax review / audit for Clients can run into thousands of dollars. Unfortunately, we have very little control over the time taken by the ATO or the extent of their investigation. As a taxpayer you have little choice but to provide the ATO with the information they require in a 'reasonable' time frame and as we all know, often times there are a number of 'grey' areas of the Tax Act that are open to interpretation, so it is very important that you are guided through the process of responding to the ATO.

 

Your annual compliance fees simply do not cover the time a tax review / audit takes. Unfortunately, we are talking thousands of dollars. So you either make sure you have the money to pay for help when you get an audit request from the ATO or now you can take out audit insurance. Consolid8 encourages clients to take a commercial mindset when it comes to insurance because at the end of the day, you are in business to make a profit and you will have to take some risks.

 

Audit Shield is a new type of insurance which is available for taxpayers. This cover applies to official Government audits of:

• Income, Land and Payroll Tax
• BAS/GST Compliance
• Workers Compensation/WorkCover
• Superannuation Guarantee and Compliance
• Self Managed Superannuation Funds
• FBT
• Record Keeping

 

A claim can be lodged for the professional service fees required to walk you through the review / audit by the ATO or a State Based Authority review / audit.

 

So how well are you sleeping at night now...?

 

The choice is yours but we highly recommend all taxpayers give consideration to their tax affairs and how well placed they would be to fund an audit from the ATO.

 

Please contact Consolid8 on 1300 222 353 if you wish to know more.

 

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