A tax review or audit is an examination of your affairs we conduct to see if you have done what you are required to do under the tax and superannuation laws, including whether you:
- Have declared all the assessable income you receive
- Are entitled to the deductions and tax offsets you have claimed on your tax return
- Have met all your regulatory obligations.
The reviews or audits the ATO conduct vary in their complexity. Sometimes they only involve a phone call or a letter asking you to provide further information or verify your claims. In some cases the tax office may visit you. In some cases you may be asked to bring all your records for examination.
Tax ATO sometimes decide to look more closely at tax returns making similar claims, or from within the same industry.
Tax refund checks, benchmark checks and data matching are largely automated reviews. The ATO audit processes vary depending on the size of business and activity type and include:
Specific-issue audits or reviews
The ATO specific-issue audits or reviews may focus on a single issue or claim, or a limited range of issues. They may cover a single tax period or year, or multiple years.
We may contact you to undertake an audit or review because:
- ATO audit work has identified that people in your industry or profession are regularly making mistakes with some aspect of their tax deductions or claim.
- ATO information matching indicates that you may have omitted income or there are other potential discrepancies.
- Information on your activity statement or tax return varies significantly from your normal activity, or is abnormal compared to the benchmarks for your industry.
- The ATO have information which indicates you may have failed to meet your regulatory obligations as the trustee of an SMSF (for example, your approved SMSF auditor may have detected and reported to us a breach of the regulatory rules that as a trustee you must comply with).
- The ATO have information that suggests you are not paying your employees’ superannuation contributions.
Comprehensive audits or reviews
The ATO comprehensive audits or reviews may examine all aspects of your tax affairs. This could include examination of any related companies and your personal finances. They may cover a single tax period or year, or multiple years.
The Australian tax office may contact you to undertake a comprehensive audit or review because:
- Of suspected participation in the cash economy or illegal activities.
- The ATO are doing audit work in the industry or profession.
- The tax office data matching or other information suggests that you may have omitted income.
- There are other potential discrepancies in your tax reporting.
- Information on your activity statements or tax returns differs significantly from our industry benchmarks.
Transfer pricing reviews and audits
The ATO conduct transfer pricing reviews as part of broader risk reviews of businesses.
Companies in a multinational group that does not have proper processes to determine arm’s length prices between the group’s companies – and cannot demonstrate to us the methods they have used to determine their prices – risk a transfer pricing audit. They also risk a transfer pricing adjustment and penalties as a consequence of any audit.
The ATO has a simplified approach to the transfer pricing review process for small to medium businesses, to minimise costs. The simplified approach applies to businesses with an annual turnover of less than $100 million, unless they are:
- Part of a multinational group that is listed on any stock exchange.
- Part of a private group with any international subsidiary or other offshore related party that has the resources to deal with global transfer pricing issues.
Pre-lodgment compliance review
Pre-lodgment compliance reviews (PCRs) are for large businesses. They help us identify and assess tax risks earlier and more effectively. They take place before a business lodges its tax return, rather than after.
For higher consequence taxpayers not in an annual compliance arrangement (ACA), the tax office use the PCR process to identify and assess their tax risk. For higher risk taxpayers, the tax office establish a PCR plan (framework) for them, which recognises where they sit on the risk-differentiation framework.
A taxpayer’s PCR plan (framework) is tailored to their situation and takes into account a range of factors. Our aim is to encourage an environment of openness and respect in which we can establish the framework and facilitate the disclosure of all material risks prior to the lodgment of the return.