How to avoid an ATO audit

The Australian Tax Office (ATO) made a conscious decision to pause its compliance work during the Covid crisis. However, with Australia’s economy bouncing back into growth and JobKeeper finished, the ATO is likely to ramp up these activities – particularly as it’s facing a shortfall of $1.3 billion against a $15 billion compliance revenue target.  

So how do you avoid lining up in the ATO’s sights and triggering a stressful and time-consuming audit? By steering clear of these five things:

Failing to lodge returns on time

You don’t want the ATO to have a poor perception of your business as that, in itself, could trigger a review. And the best way of keeping your business in the ATO’s good books is by lodging annual income tax returns and all compliance obligations on time, every time.

Consistently showing an operating loss

It’s likely to raise eyebrows at the ATO if your business consistently reports an operating loss. And while there may be genuine reasons, three loss-years out of five can trigger an inquiry.

Having a lifestyle that doesn’t match your income

The ATO aren’t fools, so if you’re spending big while claiming to only earn minimum wage, they will be suspicious. If that happens, they could calculate the income they believe is necessary to support your lifestyle – and if it doesn’t match up, you’ll likely be in trouble.

Reporting financial performance out-of-step with industry benchmarks

When you submit your tax return, the ATO compares your business’ performance against its peers. To do that, they use benchmarks based on previously submitted tax returns and activity statements from over 1.5 million businesses spanning more than 100 industries.

If your turnover falls outside the turnover ranges within these benchmarks, particularly if you operate within the cash economy, it can get the ATO’s alarm bells ringing. If you have concerns about where you sit within these benchmarks please contact our office for a review.

Discrepancies between tax returns and business activity statements

Another red flag is when your numbers don’t add up, particularly when the ATO compares your tax return income to the total sales and expenses reported throughout the year on your business activity statements. Our accountants check this for you each year when doing your tax return.

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