Your first steps if you receive an Audit Notice from the ATO

Don’t panic, get prepared

Two million businesses are audited by the ATO each year – and you’re next. What now? Transform your audit confusion into confidence with expert accounting advice.

Perhaps you’ve recently been through a review and an audit has been escalated. Or maybe the ATO has jumped straight to an audit – catching you unprepared.

In the pre-audit chaos, one thing is clear: this is a journey you don’t want to tackle alone.

Before you do anything else (including panic), contact your accountant –
or get a good one.

An accountant can help you assess the situation, assemble your documentation and navigate the audit with confidence instead of confusion.  

The first thing to do when advised of an audit – advise your accountant

An accountant with the right knowledge and expertise can help you do two important things to set you on the right path:

  1. Stay calm. Try to take the emotion out of it and focus on preparing properly.
  2. Ask the right questions to understand
  • scope of the audit – e.g. tax returns, financial statements etc
  • type of audit – e.g. short-term review versus comprehensive investigation
  • why your review is progressing to an audit – has a discrepancy been identified?

If your business has grown from humble beginnings, you may find your original sole trader accountant is out of their depth.

Overview of Australian business audits by the ATO

Approximately two million businesses and individuals are audited by the ATO each year. Some industries are more likely to be audited than others – particularly cash-based businesses (e.g. tradespeople and shopkeepers).

There are five types of ATO audits for SMEs to be aware of:
  • Super Audit (SGC) – assesses if employer is paying the correct super contributions per the superannuation guarantee
  • BAS / GST Audit – ensures business are fulfilling their reporting and legal obligations within the GST system
  • Income Tax Audit – assesses whether all income declared, deductions and tax-related obligations have been calculated and reported correctly
  • Fair Work Audit – ensures all employees are being paid fairly and working within satisfactory conditions per the Fair Work Ombudsman
  • Cash Economy Audit – identifies tax evasion within a cash economy.

Navigating the audit process

Understanding the audit process from start to finish can help decrease your nerves and increase your preparedness. Here’s a basic rundown:

  1. Notification You’ll receive an Audit Notice from the ATO via the post. They will phone to arrange a suitable meeting time and confirm the meeting agenda in writing – this is known as the audit management plan.
  2. Preliminary meeting The ATO will establish the audit scope, including the required documentation and timeline of activity to be audited. The case officer will provide a risk hypothesis, which is the area of concern about which the ATO wants more information. In your meeting, you will agree on timelines and preferred communication channels.
  3. Examination The ATO will conduct the audit per the agreed timeline and guidelines, keeping you informed throughout the process via the case officer.
  4. Clarification Queries raised by the ATO will be discussed and clarified, and the initial scope and risk hypothesis can be expanded. Engaging an accountant to manage these complexities on your behalf is crucial.
  5. Conclusion The ATO will present the final determinations and actions, including any resulting interest and penalties. At this stage, you can make final comments and challenges before the ATO rules on the matter. You can also request an independent review to ensure your case is handled impartially – the outcome of which will be made about one week after the audit conclusion. 

Being audited takes time and money, which is why some businesses invest in audit insurance. Expect a bill of more than $10,000 to address an ATO audit even when no discrepancies are found.

How your accountant can help during an audit

  • Applying their understanding of tax law to interpret complex regulations
  • Representing your interests to the ATO by communicating on your behalf and acting as your advocate
  • Negotiating the best outcomes for your business

What happens if the ATO finds a discrepancy

If an audit finds discrepancies, the ATO will explain how you can rectify them. This may involve negotiating settlements or repayment plans for additional taxes or interest charges.

If there were no discrepancies, the audit is complete.

Or an audit may find you’ve actually paid too much tax – in which case, you’ll receive a tax refund.

Finding the opportunity in audit adversity

An audit may identify weaknesses and gaps, inspire an update to internal processes and systems, or encourage proactive risk management to avoid future audits.

Be guided by expert audit services from a trusted accounting partner who can act on your behalf and ensure your business comes out the other side. 

Transform audit confusion into confidence with expert accounting advice. 

Ask for a callback from JTU Accounting.