A tax audit is an examination that ensures your financial records and taxations are in compliance with Australia’s tax laws and regulations.
Anyone can be contacted, so it’s always helpful to complete your paperwork and make sure you have receipts and documentation on hand to support all your claims.
So, in light of this new ATO scrutiny. Let’s consider some steps you can take to prepare yourself for a tax audit.
1. Conduct an In-depth Evaluation of Your Business Operations
Even if you’ve kept up with your tax obligations, abided by tax rules, and kept everything up to date, it does not necessarily mean you did it correctly. Tax laws are complex and constantly changing, and it can be easy to make mistakes, even if you take care to stay compliant.
That’s why it’s important to work closely with a tax advisor who can help perform due diligence on your business affairs. And even if you don’t want to conduct an in-depth evaluation continually, it’s always a good idea to meet with your advisor regularly on tax developments.
2. Gather All Relevant Records and Documents
Tax records, financial documents, and statements serve as evidence of your financial transactions for the ATO. Without these documents, it will be difficult to verify the tax audit, which can lead to further investigations, questions, penalties, and additional tax liability.
So, keep records of all your tax-related documents for at least five years, as the ATO can go back that far in a tax audit. This includes receipts, invoices, bank statements, payslips, and any other documents that prove your income and expenses.
3. Review Your Tax Return
Before the tax audit, it’s important to review your tax return and identify potential areas that may raise questions. It will help you to straighten out your records and omit any errors before the audit.
Not surprisingly, we recommend you employ a professional prepare your tax return. They can help you ensure that your tax return is accurate and complete and that you’re taking advantage of all the tax deductions and credits that you’re eligible for.
4. Get Audit Insurance
Taxes and tax audits cannot be avoided. They can be costly in terms of both money and time, depending on a number of factors, such as the complexity of the audit, the amount of documentation and records that need to be reviewed, and the time required to resolve any issues.
Audit insurance can help cover these costs that occur no matter what you do.
5. Keep Good Records
The ATO asks you to maintain tax records for at least five years and expect you to be able to respond to their requests promptly.
There are a number of cloud based solutions that enable you to both manage and store your financial records. Please contact one of our team to discuss how to best use these systems and determine the best solution for your situation.