Why are audits necessary
In the eyes of the ATO, a tax audit is a necessary tool to encourage taxpayers to do the right thing but the reality is that they are a painful scrutiny of your affairs and can take up to 18 months to complete. In a world where it is impossible to be perfect, the ATO can find problems with even the most fastidious accounts. Industries where cash payments occur are at a high risk of being audited.
Although the ATO have recently claimed to have adopted a warmer approach to working with taxpayers it should not be mistaken for thinking that the ATO will not exploit each mistake they find. Ultimately, they will seek to justify a result for the time, effort and resources committed to an audit to ensure there is full compliance. It should be remembered that the taxpayer carries the burden of proof.
Voluntarily disclosing information during an audit can be a sensible way of reducing the time, effort and resources that the ATO expends during an audit but there is a danger of inadvertently admitting to problems that you did not know existed. Obtaining guidance and assistance from a tax lawyer can fend off the ATO so that you can get back to business.
What are the key indicators of an at-risk business
Over declaring deductions or under declaring income can lead to heavy penalties, and in some cases criminal prosecution. The ATO are well versed in detecting problems at all levels of business and rarely, if ever, are fooled by businesses standard attempts to conceal their wrongdoing. Common indicators for the ATO are things such as the financial performance of the business compared to similar businesses in that area (called the benchmark range), compliance with superannuation and PAYG obligations, variances between tax returns and BAS, and constant losses or other anomalies which often point to problems.
What are the penalties for a tax audit problem
The Tax Administration Act 1953 prescribes the penalties for tax audits, which can be up to 75% of the tax owing. In addition, a further 20% uplift is added in certain circumstances – totalling 90%. Finally, interest at high rates are applied (and backdated) meaning it can easily result in more money being owed in penalties and interest than what is owed in tax! In serious cases taxpayers can be referred for criminal prosecution.
Can I object to an ATO decision
Early intervention by an experienced tax lawyer is always going to place you in the best possible position. However, if you already been audited and disagree with the ATOs decision we can prepare and lodge an objection to ensure you do not pay anything more than you are required to. We can also strategically negotiate a reduction of penalties and interest.
Will the ATO prosecute me
A finding of Intentional disregard during a tax audit will likely trigger a further assessment as to whether you should be referred to the Commonwealth Director of Public Prosecutions for criminal prosecution. Put simply, Intentional disregard means that you knew that what you were doing was wrong but you ignored the law and proceeded anyway. This may be by making a false statement to the ATO or by omitting to disclose relevant information. Even in the absence of direct evidence against you a charge may be proved when the facts and circumstances support an inference that you acted with an intentional disregard for the law. Such findings will often lead to a custodial sentence (prison) being imposed by the court.
Am I personally liable for fraud or evasion committed by a company or trust
You may be asked to appear before the Court in your individual capacity even if the tax offence was committed by a company or trust, leaving you with a criminal record. The deeming provisions in section 8Y of the Tax Administration Act 1953 allow the ATO to attack the individual responsible for the tax offence of the company or trust and bring them before the Court to be punished.
How to navigate the audit process
CharterLaw Legal has extensive experience in dealing with tax audits and utilises a solid network of high ranking contacts within the ATO to achieve results that can only be obtained by tax professional who understand ATO policies and procedures. Working constructively with the ATO in way that robustly protects your interests can result in potential ATO criminal prosecutions being avoided and a negotiated settlement with the ATO.
CharterLaw Legal is part of a professional services group that includes CharterLaw Accounting, and this gives us immediate access to chartered accountants who will undertake the necessary compliance work that must be prepared in order to make an appropriate disclosure to the ATO.
This allows CharterLaw Legal to control the entire process and to maintain confidentiality no third parties are involved apart from yourself, the ATO and your CharterLaw adviser.
CharterLaw Legal offers sound technical confidential advice, which is bound by legal professional privilege, to ensure that your rights are protected and what you tell us stays with us.