Triggers to an ATO Audit or Review

Over the past few years, the ATO has been investing in more sophisticated, data-matching software. As a result, there has been a record number of tax audits and reviews. Lodgements are now cross-referenced against information from a wide range of government organisations, including Centrelink, WorkCover, Department of Transport, banks and other financial institutions. Should any of the information not match, the software will flag the return for investigation and a possible review or audit. 

Although data-matching is the ATO’s biggest tool for triggering a review or audit, they can also be completely random. Your industry may just be on the ATO’s hit-list for that period. Whatever the case, it is important to remain proactive in managing the risk of an audit. This can be done by keeping aware of the main triggers of an ATO audit:  

Performance outside ‘Industry Benchmarks’  

The ATO has a comprehensive database of expected financial performance based on your industry (disclosed on the cover page of tax returns). Through the use of statistical analysis software, tax returns and BAS’s, the ATO can easily be compare average turnover and key expense ratios. Should the results be inconsistent with the industry parameters, this can indicate various tax issues such as unreported income for predominately cash businesses.  

Whilst not a fail safe way to avoid an ATO review or audit, proactively comparing your results to the industry will go a long way to managing the risk of a review or audit. As a guide for small business, the ATO has published these benchmarks here.    

Discrepancy between information lodged with the ATO 

Large variances between lodgements can often trigger the ATO to investigate. The most common examples we find are:   - Tax Return income and expenses compared to BAS’s lodged throughout the year;   - Salary, Wages & PAYG Withholding per BAS’s not matching Payment Summaries;   - Different Employee Benefit Contributions per Tax Return and FBT Return;     It is therefore important to ensure all information lodged to the ATO has been reconciled for the given period. 

Falling behind on lodgement deadlines 

Failing to meet lodgement deadlines and making tax payments on time can signal possible issues within the business, as well as being perceived poorly by the ATO. This could potentially lead the tax office to investigating them further.     The ATO can only go off the information they receive. It is therefore important to engage in regular communication should you anticipate not being able to meet obligations as and when they fall due. We can assist with this on your behalf and often find the ATO to be quite understanding once contact is made.

The anonymous tip off  

Disgruntled employees, suppliers, or customers dobbing in businesses is becoming more and more prevalent. The most common being an employee not being paid super. As above, this instantly gets the ATO’s attention as it can signal various other issues within the business. A review of your super guarantee obligations can quickly turn into a full-scale audit by the ATO.    

Other triggers that may get the ATO looking into your business include international transactions, not lodging an FBT Return when the business owns a motor vehicle, being in the news (good or bad), or negative reviews online.  

What can you do? 

If any of the above sound relevant to your business, there is always the option of taking out audit insurance. This is designed to pay the associated costs should you find yourself under an ATO audit. 

As mentioned, the best way to minimise audit risk is to proactively manage the above triggers. At illumin8, we assist in this area by engaging in your business on an ongoing basis, rather than once a year or only when a problem is identified.  

Through the use of cloud-based technology such as Xero, we can get an up-to-date snapshot of the business at any given time. Should the ATO come knocking, we will be armed and ready with the information they require. By managing your financial performance and remaining in regular contact with both you and the ATO, we can help to reduce the risk of them knocking in the first place.