How to deal with tax audit, some tips from Michael Cranston – Past Deputy Commissioner of ATO

A tax audit can sometimes be quite frightening and daunting to those people who are not well prepared for a tax audit. In Australia, the tax lodgement system is based on the self lodgement protocol, which means you would lodge the tax return, both individual and business tax returns. You would be responsible for the accuracy and completeness of the data in the tax return. The Australian Taxation Office would accept the figures; however, if the Australian Taxation Office have questions over the data, they will initiate a tax review to probe into a particular section of the tax return, if the feedback from the study is good. The Australian Taxation Office would give an all clear, if not, then the Australian Taxation Office will initiate a tax audit.

At the time of the tax audit, depending on the circumstances, the Australian Taxation Office will often offer voluntary disclosure option to the taxpayer and asking them to disclose to ATO the areas of a mistake voluntarily. If the taxpayer does undertake that option, and if the Australian Taxation Office is happy with the findings, then they will not investigate further. If there is a shortfall tax due to the additional information, then usually the ATO will still apply a penalty, most likely to be 25% of the shortfall amount. As the most professional and experienced tax agent and accountant in Ashfield Sydney and Adelaide, we would be able to help you to seek a reduction in the penalty and interest from the ATO.

However, suppose the initial tax audit finding is not satisfactory. In that case, the Australian Taxation Office will initiate a full-scale tax audit, and examine the data in that tax return, or tax returns of prior years of the business under the microscope. At that time, if they find mistakes in the tax return, which lead to higher tax payable, then not only you need to the shortfall tax to the Australian Taxation Office ATO, you will also need to the shortfall tax penalty. The shortfall tax penalty includes 

  1. 25% due to reckless; 
  2. 2. 50% due to misleading and deceptive information;
  3. 3. 75% or 95% due to interference with the tax audit.

Many people might ask, what would constitute as mistakes in the tax return, as one of the most professional and experienced accountants and tax agent in Ashfield Sydney and Adelaide South Australia, we had been telling our client that if you find the followings

  •  you have income that you haven’t disclosed
  • you have claimed deductions that you weren’t entitled to
  • you have claimed credits that you weren’t entitled to
  • you have made statements about your tax affairs that were false or misleading.

Then please talk to your accountant, or speak to us, as one of the most experienced and professional accountants and tax agent in Ashfield Sydney and Adelaide South Australia, we would be able to help you. Sometimes it is better to voluntary disclose the mistake to ATO through amendment before the ATO sets their eyes on you. 

Last week, we had the privilege to talk to Mr Michael Cranston, who had worked in the Australian Taxation Office for over 40 years, and the last role he had with ATO before departing was Deputy Commissioner of Australian Taxation Office. In this video, he will talk about the access power of the ATO. He will also talk about how to deal with the tax audit effectively. Michael will also shed some light with us about his recent audit experience of oversea income, in term of people getting money from their parent oversea, and ATO then started to audit them and allege the inflow of money are for the oversea income, and should be tax in Australia.

Please see the interview video here

Mr Michael Cranston explains the access power of the Australian Taxation Office about the content in the ATO website as ATO can access places in Australia without the search warrant. That they usually need to give reasonable notice; however, on certain circumstances, they don’t have to do it.   

“When using our access powers, we are authorised to enter and remain on any land, premises or place and have full and free access to books, documents, goods or other property. We can make copies of documents for our records, but cannot seize or remove your documents without your consent. We can only exercise our rights of access for the purposes of the applicable laws we administer.

If we visit your premises, you must give us reasonable assistance and provide adequate facilities. Penalties and prosecution may apply if we are obstructed from gaining access or where reasonable facilities or assistance has not been provided.

We will generally give you prior notice before exercising an access power. However, in exceptional circumstances we may not give you notice beforehand – for example, if we believe that the documents we need may be destroyed.

Our access powers are limited by legal professional privilege, the accountants’ concession and the corporate board advice concession. Our access powers are not restricted by claims of confidentiality or privilege against self-incrimination.

The decision to use our access powers is reviewable by the Federal Court under section 5 of the Administrative Decisions (Judicial Review) Act 1977. You have the right to a ‘statement of reasons’ in respect of our decision under section 13 of the Act.”

As you can see from the above content, the ATO has an enormous amount of powers to search for your place. Also, ATO is the only organisation besides the court to be able to internally issue garnish notice to the taxpayer for debt. In the next article, we will talk about in detail about how ATO conducts the tax audit, and how would we as one of the most professional and experienced accountants and tax agent in Ashfield Sydney able to help you to overcome the tax audit. 

From ATO Website

As one of the most professional and experienced accountant and tax agent in Ashfield Sydney and Adelaide South Australia, we are here to help you, if you had encountered taxation issue, please let me know via our email hello@endurego.com

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