Tax Audits and Queries
Tax Audits can be time consuming, stressful and a costly exercise but they are a fact of life if you run a business, own a rental property or have your own self managed superannuation fund.
Here at PFG Accountants & Advisors our philosophy includes helping you protect your assets and we offer clients the opportunity to insure against the accounting costs you might incur in the event of a tax audit. Below are some commonly asked questions regarding tax audit insurance.
What are random Tax and Government Audits?
The Australian Taxation Office (ATO) and other state and federal government agencies conduct audits, reviews and investigations to ensure business owners and taxpayers comply with all the various tax and legislative requirements including:
- Income Tax
- Workers Compensation
- Employer Obligations
- Land Tax
- Payroll Tax
- Record Keeping
- Superannuation Guarantee
How likely am I to get a random audit, review or investigation?
The ATO, along with other federal and state agencies continue to announce significant increases in their audit activity. Now more than ever, Individuals, Businesses and Self Managed Superannuation Funds are at risk of being selected for a random audit or review. A lot of audit activity is computer driven by industry benchmarks and the ATO’s 'Big Brother' computer is also targeting specific industries including the cash economy.
What are the costs to businesses and taxpayers in the event of a random audit, review or investigation?
If your business or individual return is subjected to a random audit, review or investigation, you are responsible for the costs (professional fees) involved in providing the required information. Responding to even the simplest enquiry can involve hours of work and if your audit extends to multiple years or multiple entities you could incur thousands of dollars of accounting and legal fees. The cost of being properly represented in these matters can be quite considerable depending on the length of time involved.
How can I protect myself from the costs of random audits, reviews and investigations?
We can offer you an Audit Shield Service which can relieve you of these fees to a capped limit. The policy provides for the payment of the professional fees incurred as a result of you being selected for an audit, review or investigation by the ATO or other Government body. The Audit Shield Service provides a fixed, cost effective solution to guard against these costs.
What Costs are covered?
The service covers all professional fees up to a prescribed limit (with no excess) when responding to, or representing you in an audit, review or investigation. These include not only our fees, but also legal fees, bookkeeping fees and specialist professional advisor fees (e.g. quantity surveyors, valuers, and actuaries).
Who is covered?
All of our clients can take advantage of the Audit Shield Service. Different levels of cover are available for:
- salary and wage earners;
- businesses or business groups;
- Self Managed Superannuation Funds;
What do I need to do to take up the Audit Shield Service?
Please contact us and we will send you an information pack including an acceptance form.
Sometimes we hear a few misconceptions about the tax audit insurance offering, Audit Shield. Here are a few common myths and explanations.
Myth 1: “Audit Shield only covers audits”
The comprehensive policy covers all audits, enquiries, investigations and reviews instigated by the Australian Taxation Office (ATO) and other federal, state and territory government agencies. All previously lodged returns are covered too as long as the client has Audit Shield cover in place at the time the notification of the audit is issued.
Myth 2: “I don’t need Audit Shield. I have a good accountant”
The Federal Government has provided $77.8 million to the ATO to expand data matching with third party information and will check 640 million transactions* which is forecasted to generate revenue of $610.2 million over the period until 2018**. These transactions will not discriminate between ‘good’ and ‘bad’ accountants and do not reflect on the abilities of an accountant. Once the Audit Shield policy is in place, accountants and clients alike are relieved with the peace of mind that Audit Shield provides.
* Australian Taxation Office’s Compliance in focus 2013-14
** Australian Government - www.budget.gov.au
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Below are a few actual examples of audit activity cases.
# 1: Retailer – “Help when we needed it”
Type of activity: GST Audit - No additional tax payable
End result: $6,800 accounting fees fully covered
A retailer who was experiencing difficult trading conditions received a Goods and Services Tax audit. The financial cost of dealing with
the ATO would have been a burden on the client. The outcome for the client was that the audit was dealt with at no cost to the business.
#2: Business Group – “We have seen an increase in data matching”
Type of activity: Tax Audit - Capital Gains Transaction
End result: $25,000+ accounting fees covered
A group of businesses derived a capital gain. The ATO commenced lengthy audit action and support was able to be provided under Audit Shield
for not only the firm’s assistance but also for legal assistance that was necessary for dealing with the ATO enquiry. The positive outcome
for the client was that a robust and measured defence of the ATO claims could be made using the cover available.
#3: Individual Taxpayer – “Audit Shield gave me peace of mind”
Type of activity: Tax Audit Review - client 100% correct
End result: $3,450 accounting fees fully covered
An individual living in rural Victoria was data matched by the ATO and certain work related and rental property deductions were questioned.
Professional assistance was provided and all the ATO questions were resolved. The positive outcome for the client was that they were fully
supported, the audit assistance professional fee was covered, and the ATO cleared the client.
#4: Self Managed Superannuation Fund – “Increased ATO audit activity”
Type of activity: Tax Audit - no cost for professional assistance
End result: $6,300 accounting fees fully covered
The ATO undertook a selective audit of a Self Managed Superannuation Fund. This audit focused on the activities of the Trustee. The positive outcome for the client was that the total professional cost of dealing with the investigation questions and liaison with the ATO was covered.