Increased ATO Audit Activity – Proactive Steps to Consider

By Chris Smith

As the COVID-19 stimulus measures start to wind up, the ATO is re-commencing audit activity.

We have already seen a substantial increase in payment demands as well as the commencement of some early stage ATO audits.

It is also worth noting the Federal Budget has recently provided the ATO with increased funds to focus on:

  • 5,000 high wealth private groups – net wealth >$50m
  • Medium and emerging private groups – net wealth >$5m

ATO Approach:

The medium and emerging private groups can expect risk reviews to be undertaken based on improved data-matching and risk identification systems.

Where a private group scores a low assurance rating, they will be referred to the next stage for a comprehensive Streamlined Assurance which can be a costly and time-consuming process.

While the group reviews are randomly selected, once a family group are in the ATO audit process, there is a targeted, systematic approach to undertaking the review.

The ATO apply their “Justified Trust” approach to confirm taxpayers are paying the right amount of tax.

The four pillars of the “Justified Trust” are:

  1. Effective tax governance & risk management;
  2. Significant & new transactions;
  3. Tax risks flagged to the market by the ATO;
  4. Alignment of accounting and tax results.

Proactive actions to prepare for an ATO Assurance Review:

Be prepared.

There are practical actions that can be taken to prepare for these reviews.

  1. Conduct a gap analysis – compare your governance framework and controls to ATO best practice guidelines.
  2. Assess any tax risks flagged and document how these risks have been managed.
  3. Document and implement your tax governance framework (do not leave it in the bottom drawer).
  4. Document advice and retain evidence of significant or new transactions.
  5. Review all substantial tax and GST transactions – ensure they can be supported by documentation.
  6. Review Tax Audit Insurance coverage.

These reviews typically cover two financial years and/or three consecutive BAS periods.

Where gaps or risk areas are identified, we recommend seeking further advice to mitigate and manage these areas.

If you are seeking advice or for further details on the above, please contact your advisor or Chris Smith directly on (08) 6212 7200.