Australia’s tax system is underpinned by self-assessment, which means taxpayers are responsible for lodging an accurate tax return that complies with tax laws each year. The information provided to the Australian Taxation Office (ATO) in that tax return is initially accepted as being true and correct, and a tax assessment is issued on that basis. The ATO is not responsible for ensuring the accuracy or completeness of the original tax return, but it has the power to check, review, and audit a tax return if it chooses. If the ATO decides to conduct an audit, you may want to know the reason that you were selected for the audit, what information the ATO holds about you and what you should do about it. At TaxResolve, we help clients understand their rights and obligations in an audit situation, which is why we’ve come up with a few things below that we believe are important to know about an ATO audit.
What Is A Tax Audit?
After a tax return is lodged and the taxpayer receives their assessment, the ATO will typically undertake data analysis to check all information declared by taxpayers in their returns against the enormous amount of data the ATO obtains or sources from third parties each year. This data includes details from;
- Banks, Financial institutions and Credit card companies
- Stock exchanges, share registries and trust unit holdings
- Federal and State government departments (including for grants, allowances, incentives, payroll data)
- Online, gig economy and e-commerce businesses
- Ridesharing and transport businesses
- Digital and cryptocurrencies
- Land titles and real estate authorities
- Motor vehicle, boating, aircraft and other licencing registries and authorities
- Insurance companies (aimed at high-wealth taxpayers)
- Foreign tax offices and organisations including tax and financial information exchanges
- Suspicious and reportable AUSTRAC transactions
- Gold, metals, water and other commodity traders
The data will be acquired and matched to improve audit risk profiling of taxpayers and provide a holistic view of their assets and accumulated wealth. The lifestyle assets data-matching program allows the ATO to identify and address a number of taxation risks including Capital Gains Tax, Income TAx Avoidance, GST avoidance, FBT avoidance and whether self-managed super funds are investing within permitted rules.
Based on this analysis, and from other information the ATO receives such as dob-ins and tip-offs from the public or tax profession, the ATO may conduct a review or audit of a taxpayer’s tax returns. The ATO will do this where it suspects or detects that there is a risk the taxpayer’s return is not correct.
There are many intricacies involved with ATO audits. The ATO has dozens of Practice Statements and Rulings that contain the rules and processes for audits. Taxpayers rights are also contained in the Taxpayer’s Charter, which you can access here.