The ATO has enhanced and extended its data matching software so that when it processes tax returns it cross-references the information in the returns against records collected from other sources.
An audit can range from 28 days to four years and the cost can be significant. The X factor in dealing with the ATO can sometimes be the personality of the ATO officer you are dealing with. This can create uncertainty and unpredictability in the process and the outcome.
Effectively handling a tax audit requires negotiating skills, experience, knowledge and patience to get through the maze. If you are audited, it’s in important to engage Advisors who have all those attributes.
Audit triggers are factors that raise unwanted attention from the ATO and increase the odds of you being audited. Some of these are:
Types of audits and reviews
There are many different levels that the ATO can conduct an audit or review at. Some of these are:
Attendance at the audit
We recommend, unless required by specific notice by the ATO, you do not attend the audit. It would be more beneficial to have your tax advisor/ accountant attend on your behalf. The ATO will normally have at least 2 or 3 and sometimes more officers including lawyers and technical specialists attend and difficult questions will be asked as they gather information. The meeting may be taped and it is capable of being used in evidence in future court proceedings.
In an attempt to move away from the combative nature of dealing with the ATO it has commenced a number of initiatives. These are based on early and open engagement and a more collaborative approach to resolving taxation issues before they get to the dispute stage. This started with ASX listed entities and has now filtered down to the top private individuals and groups and there are signs the approach will filter down to major transactions and taxpayers. The initiatives include:
Pre-lodgement Compliance Review (PCR)
A PCR is used mainly for the higher level taxpayers and major transactions. Its main aim is to ensure that the right tax outcomes are achieved by identifying and managing material risks through early and transparent engagement. A PCR can run for up to two years.
A PCR typically involves:
Alternative Dispute Resolution (ADR):
ADR refers to the process where an impartial person helps those in a dispute to resolve or narrow the issues between them. There are three categories of ADR utilised by the ATO:
Facilitative processes (Mediation):
The ADR practitioner assists the parties to identify the disputed issues, develop options, consider alternatives and endeavour to reach an agreement.
Advisory processes (Neutral Evaluation):
The ADR practitioner considers and appraises the dispute and provides advice on some or all of the facts of the dispute, the law and possible or desirable outcomes.
Blended processes (Conciliation):
The ADR practitioner plays multiple roles where they may facilitate discussions as well as provide advice on the merits of the dispute.
As an additional service, the ATO now provides a mediation service free of charge. Individuals or small businesses with a tax or super disputes can use the ATO’s In House Facilitation service.
This service is a mediation process where an impartial ATO facilitator meets with you and ATO case officers. Any information shared during the facilitation process is only to be used during the process – this service is confidential.
Tax audits and the other initiatives the ATO is offering are all complicated and can be extensive and technical processes. They need to be approached with caution and planned with your advisors.
Madison Marcus can offer you skills, expertise and experience in dealing with the ATO to ensure that you achieve the best possible outcome in a cost effective manner.
If you would like more information or advice on this topic, please contact Rolf Koops, Partner – Tax, via the below
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Madison Marcus Law Firm produced this article. It is intended to provide general information in summary form on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.