While the majority of businesses do the right thing, the ATO has determined that a that a small portion of high wealth groups and tax advisors engage in risky and potentially illegal behaviour.
To cross check information, the ATO has increased it's data matching capabilities. Meaning it uses different sources to check transactions and history and then cross references it to the data that they have on file for that business.
Besides data-matching, other behaviours that can trigger the attention of the ATO include:
- Unusual or large one-off transactions
- Reported financial performance is not comparable to similar businesses
- Individual lifestyles not supported by after-tax income
- Complex business structures
- Regular reporting of operating losses
These triggers do not automatically mean that a business is intentionally doing the wrong thing, but could indicate that mistakes are being made.
Common mistakes that the ATO sees during tax time include:
- Poor bookkeeping, such as incomplete cash register records or missing invoices
- Not paying superannuation and leave entitlements to subcontractors that are engaged under similar circumstances to employees
- Inconsistent measuring and valuing of inventory
- Not understanding what deductions can be claimed
Whether you are a small or large business, the best way to avoid an audit is to make sure you get your record keeping right from the start and can explain any inconsistencies that crop up from the ATO's point of view. If you are unsure then get advice from your accountant or us.