Tax audit – how to minimize the risk and the tax bill

Our framework in assisting customers with tax audit is based on four principles, MEET, PLAN, ANALYZE, and NEGOTIATE.

According to the latest news, 400 small businesses will expect visits from the Australian Tax Office (ATO) this March.  ATO will target at take away shops, hair salons, beauticians to target the problem of under declare of income associated with a cash economy.

Over the past few years, the ATO has enhanced and extended their data matching software. When the ATO processes tax returns, they cross-reference the information declared in the returns against records collected from other government organizations like Department of Transport, Centrelink, Workcover, Superannuation Funds, Banks and Financial Institutions.

During the tax audit process, a professional and experienced accountant with an excellent command of tax regulations and rulings can make a fundamental difference between paying a hefty penalty or getting out of the audit with ease.

In our experience a “quick” audit takes around 28 days, worst case scenario it can take 3 to 4 years to completely resolve a complex audit. The process can involve face to face meetings with the ATO and requests for financial records for up to five years from the date of lodgement. The costs incurred can be significant (running into tens of thousands of dollars), even if all your lodgements are eventually proved to be correct.

Hence it is vital that a highly experienced accountant specializes in the field of a tax audit is there to work with the client. A very experienced accountant specializes in the tax audit will assist customers in the following areas.

  1. To deal with the ATO on behalf of the customer, with which involves understanding exactly the reason behind the audit;
  2. To explain to the ATO the circumstances arising to the issue both from the personal and technical grounds;
  3. To provide and analyze the client’s data;
  4. To negotiate with the ATO to reach a better outcome and/or raises an objection to the ATO to improve the audit outcome.

Sometimes a tax audit could be just a simple exercise in which ATO wants to clarify some information from the client. However, if it is not handled correctly, it could mean that the small issue will be blown out of proportion, leading to potential a large scale tax audit cost a significant amount of money and resource.

EndureGo Tax has always been viewed by our clients as one of the best accountant and tax agent in Sydney and Ashfield. Our aim is to deliver exceptional quality accounting and tax services, especially during the tax audit time. Our promise is to work closely with the clients and ATO tax auditor, thoroughly analyze the information, and seek the best outcome for the client. We have an excellent track record of reaching a successful outcome during tax audit, our success rate is 95%.

We would like to share with you a real scenario to demonstrate our prowess in helping the clients to reach a favorable outcome during the tax audit, with which had helped him to reduce a significant amount of tax bills.

Example of how we helped a client to reach an excellent outcome in tax audit

One of our clients so-called Joe had been with EndureGo Tax for some years, we managed his bookkeeping and tax affairs.

Joe ran a news agency, the business was doing ok. However, once we engaged the client, we identified a critical issue in that he does not have a cash register or a fully functioning cash register in the shop.

As a responsible accountant, we would raise the matter with the client at every quarterly meeting. We would urge the client to get a cash register, and that it is vital to have a cash register, failure to have one would mean that we will have no evidence to defend at the time of an ATO tax audit on the issue of under declare of income.

Also, we also reported to him in our quarterly meetings that his benchmark significantly deviates from the ATO business benchmark, and that would pose a significant tax Audit Risk.

A few years later, ATO audited the client on the very issue which we had mentioned to the client for the past few years, which is out of range benchmark figures. Once the client found out, he was scared and does not know what to do.

Our framework in assisting customers with tax audit is based on four principles, MEET, PLAN, ANALYZE, and NEGOTIATE.

We immediately set up a meeting with the client, explain to him the nature of tax audit in that it might be just ATO want to clarify some information from him. We also assured him that we will support him along the way and we will update him about the progress on a weekly basis.

We also set up a meeting with the ATO tax auditor to find out the exact reason behind the tax audit. We then review and analyze all the information, and prepare a tax audit plan and report back to the client.

EndureGo Tax will help you with tax audit to ensure to good outcome

EndureGo Tax will help you with tax audit to ensure to good outcome

We then structured a meeting between the client and ATO tax auditor to make sure the auditor know the client on a personal level, this has proved to be critical in reaching a favorable outcome for the customer during the audit. We then delivered the information as requested from the ATO to the tax auditor promptly.

The tax auditor did not look into the expense in depth, as they had confidence in our bookkeeping work.

However, we told the client to hold on, as there was still some risks that if ATO gets its way without much objection from us

However, the very fact that the client does not have a cash register placed the client in a very unfavorable position, and there is no much we can do as well.  Hence we make sure the client understand this very well, and that our job is to minimize the damage. In the end, the tax auditor formulated the report and stated that based on the ATO benchmark, there will be additional $200,00 sales, and given it is over a few years back, there will be a penalty and accrued interest for the excess tax. However, they also consider the client might not have much experience in the record keeping and that it is not intentional. Hence they applied the lower scale of the penalty. Even with that, the client is looking at paying $100,000 in that particular audit year.

The client was thinking to accept the outcome. However, we told the client to hold on, as there was still some risks that if ATO gets its way without much objection from us, they might examine the client for other years, and if that happens, the client would be in an atrocious position. Hence we need to negotiate or object to the ATO for the decision.

We then formulated a report which referenced to the fact, our arguments and relevant legislations in the tax acts and raised an objection to the tax auditor at ATO. Our objection was accepted by ATO on a technical ground, and we were able to successfully eliminate all the penalty and interest for the client, and also ensure that the additional sales will be allocated to other family members hence to reduce tax. After our successful negotiation, the tax bill was significantly reduced to $10,000 in that year, a 90% reduction. What is more, the ATO did not look into the tax affairs of the client for other years.

Lowest interest rate with EndureGo

Lowest interest rate with EndureGo

We would like to help more clients to reach a favorable position in the tax audit, this is especially in the renewed focus from the ATO in targeting at the cash economy. Hence we would like to give the first 10 customers a free 15 minutes consultation time with our principal John Cheng FCPA to briefly review your financial affair to determine the audit risk and succinct insight into how to reduce it. Please call John Cheng on 0410-829-900, or write to him at john.cheng@endurego.com. You can also raise the inquiry at our website https://www.endurego.com/online-booking/.

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