The Australian Taxation Office (ATO) has been on an audit blitz targeting various individuals and businesses suspected of tax rorting or tax evasion. For both individuals and businesses, an unforeseen tax audit can spell financial disaster. It often comes with extra costs and where there is culpability, some punitive measures. In the recent months, the frequency of these random audits has been increasing at an alarming rate and many of these target entities that are considered high risk or whose tax returns show certain inconsistencies.
The costs for preparing and being subjected to a tax audit are quite high and so to avoid these costs or provide yourself with a buffer from random audits, you may consider purchasing tax audit insurance to give yourself an overall peace of mind.
Tax Business is Complex
The Australian tax code is one of the most complex in the world so even if you are making the best efforts, you might find yourself being deemed non-compliant on certain tax matters. If you are a business owner, you must take steps that will ensure you are fully compliant with all the relevant tax requirements and legislation in order to avoid a potentially costly audit. You have to get everything right including keeping comprehensive records, filing your income tax, Workers’ Compensation, payroll tax, land tax and goods and services (GST) tax among others.
These are not the only tax obligations that you will grapple with as a business. One of the key tenets of ATO tax regulations is the requirement for substantiation. As a taxpayer, you will have to provide evidence your tax compliance to avoid falling radar of ATO tax audit.
Audits can be complex and lengthy processes. Often, there will be a requirement that you provide supporting evidence for all your returns and claims. You will also be liable for all the costs incurred during the tax audit. In some cases, the ATO may require historical data or other data covering your interactions with other parties and this can lead to a drawn out and costly tax audit.
Tax Risks Your Business Might Face That are Likely to Trigger an Audit
Some of the major risks that are likely to trigger a tax audit on your business include the following:-
- Having inconsistent records: If the information that is contained in your tax filings such as the income tax returns, employee records or the tax records is inconsistent, this can be a red flag that may likely trigger an ATO audit.
- You have outstanding tax lodgments: If you are late with payments or fail to lodge your tax returns on time, the ATO may draw the inference that your business systems are not fully compliant and may be interested in carrying out a more comprehensive audit.
- Non-compliance in contractor payments: Are you dealing with the contractor entitlements correctly? Failure to do so may attract an ATO audit.
The penalties imposed by the Australian Taxation Office
At the very least, you can escape with a warning for infringement of tax laws but more often than not, you are likely to be slapped with financial penalties and the accrued interest or even criminal prosecution should you be found in deliberate breach of the Australian tax laws.
Tax Audit Insurance to the Rescue
If you have the risk of an ATO tax audit hanging dangerously over your head, the best mitigation would be purchasing a tax audit insurance coverage. As implied in the name, this insurance provides you with a cover for any random tax audits which you may be subjected to by the ATO.
The tax audit insurance offers a broad-based coverage for the costs associated with preparing for the audit such as accounting costs, bookkeepers, lawyers as well as the cost of the various professional advisers during the audit. The insurance will also cover any other costs that you are likely to incur when undergoing the tax audit such as the cost of substantiation.
However, it is important to keep in mind that the tax audit insurance only covers the cost of the preparation and does not cover any fines or penalties that you may incur for non-compliance. The focus is on the expenses incurred during the investigations but not on the outcome of the audit.
Due to the differences in the stamp duty rates in various territories, the tax audit insurance will vary from state to state. It’s prudent to shop around for the best value market rates that will offer you the best bang for the buck.
Protect your business today
Given the complexity of the tax regimen and ATO’s aggressive policy on tax cheats, it is not unreasonable to expect a tax audit from the Tax Office. What you can plan for with certainty is how you are going to cover the cost of the tax audit and here, the tax audit insurance cover will come in handy.
The insurance ensures that you won’t have to dig into your coffers to pay the fees for the tax investigations, enquiries, reviews or a tax accountant Melbourne expert. Having the coverage will help relieve the stress of the audit process and ensure your business is functioning normally even in the midst of a very unpleasant ATO audit experience.