Tax Audits & The ATO – Here’s What Happens

When lodging a return with the ATO, you are expressing that to the best of your knowledge, the information is correct. However, sometimes issues arise from this information that might signal red flags to the ATO.

Tax audits are conducted when the ATO deems that a more extensive examination of an issue is necessary. These audits can be conducted on a fairly basic level or they can be much more in-depth and analytical.

In most cases, there will be a review which then leads to an audit, but this isn’t always necessary. A review may not be deemed necessary in cases where fraud or evasion is suspected or there is high risk associated with the transaction.

The ATO states that they will be transparent about the following aspects of an Audit:

  • Scope, periods under audit and expected completion date
  • ATO’s risk hypothesis and information required to assess the hypothesis
  • Choice of channel to provide information to ATO
  • How audit will be conducted (key milestones and relevant guidelines)
  • Advantages of, and procedures for, making voluntary disclosures
  • Expectations from individuals/businesses when information has been requested for records
  • Circumstances in which ATO can be expected to use their formal powers

Cooperating with the ATO’s requests is the ideal response. If there is a lack of cooperation, then the ATO can use their formal powers to access the information they are seeking:

  • Notice powers: Require you to give information, attend and give evidence or produce documents
  • Access powers: Give free access to the ATO to all places, books and documents and require that assistance be given to ATO’s officers to exercise their powers.

Cooperation makes this process much easier for both parties as a lack of cooperation can not only create a bad image, but can be easily overcome by the ATO’s powers.