Every year, thousands of individuals and small businesses are audited by the ATO, and many find themselves in a dispute over the amount of taxes owed.
The beginning an audit is an important stage that sets the tone for the rest of the process. During this stage, you will be introduced to the auditor who will request information and then fact-check it. It is important to proceed with caution and aim to answer all questions honestly and accurately. If you are not certain of an answer to a question, it is best to make that clear and not answer it, as opposed to giving the wrong information.
Before a dispute becomes an audit, it will usually be classified as a review after a taxpayer has been flagged. At this point, the ATO will do some further investigations. They may request documents and information from the taxpayer themselves. Things like financial statements, contracts and records are commonly asked for. They usually also seek data directly from other sources such as the taxpayer’s bank.
The auditor will use this information to assess the taxpayer’s operations and determine any areas that may require a more detailed examination. Following this, they may issue notices for the provision of specific information. In some cases, they may also ask for access to a business’s computer systems, including their accounting software and databases.
The auditor also compares the information provided by the taxpayer to the information available to it via third parties. The ATO uses this to evaluate the taxpayer’s credibility. Other methods of evaluating credibility can include questioning, attempts to unsettle the taxpayer, or even befriending them. Common techniques include having more ATO officers attend a meeting than was expected, sudden changes from what was organised (such as bringing a USB stick to a meeting and asking for a download of information), and suggesting that they may issue certain notices. All the while the ATO will be observing the taxpayer’s reaction and forming a view on credibility.
The auditor will usually have a strict timeline to complete the audit. They may develop an audit plan, which outlines the steps they will take to complete the audit and provides a timeline for the completion of each step.