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The Dreaded ATO Tax Audit – Latest Stats, and How to Be Ready

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The Dreaded ATO Tax Audit - Latest Stats, and How to Be Ready - KeyPoint Accountants

For any business owner, one area that often causes concern is the potential for audits and reviews by the Australian Taxation Office (ATO) or other government revenue authorities. 

While these audits may not necessarily reflect any faults in your book-keepers or accountant’s work, they can still disrupt your business operations.

Staying informed about the current audit trends can help you proactively manage your tax obligations and minimise the risk of an audit.

In this blog post, we’ll talk about the latest Audit Shield claims activity data across Australia, covering the period from 1 July 2022 to 30 June 2023. Audit Shield is an insurance product to help accountants and their clients deal with the costs of ATO audits, so this is a useful source of data to learn from.  

We’ll explore the top audit activity areas, examine notable trends, and discuss how partnering with a trusted accounting firm can help ensure your business remains compliant and thriving.

A Noteworthy Increase of 9% in Audit Shield Claims Activity

According to data from the Accountancy Insurance Claims Department, Audit Shield claims activity across Australia saw a 9% increase between 1 July 2022 – 30 June 2023 compared to the previous financial year. This highlights the growing importance of being prepared for potential audits and reviews.

The top five audit activity areas during this period were:

  1. Payroll Tax (All States) – 13.74%
  2. Employer Obligations (PAYG/SG/FBT) – 12.55%
  3. Income Tax (Full/General/Combined) – 10.18%
  4. BAS (Pre & Post Assessment) – 9.86%
  5. Income Tax (Other Specific) – 8.46%

These areas accounted for a significant portion of the overall audit activity, emphasising the need for businesses to pay close attention to their compliance obligations in these domains.

Now, let’s take a closer look at some of these key areas and their implications for business owners like you.

Frequency of Audit Shield Claims Activity Across Australia 2022-23 - KeyPoint Accountants

1. Payroll Tax Investigations (All States)

One of the most notable trends in the 2022-2023 Audit Shield claims activity data was the significant increase in Payroll Tax Investigations across all states. This category rose to become the top audit activity area, with an overall increase of over 3.4% compared to the previous financial year.

When examining state-specific growth rates, some remarkable statistics emerge:

  • Victoria grew by 42% (on top of 2021/22 levels, which were equivalent to pre-COVID activity)
  • Western Australia grew by 84% (now back to pre-COVID levels)
  • New South Wales grew by 462% (albeit off a small base in 2021/22)
  • Queensland dropped by 9% (both 2021/22 and 2022/23 above pre-COVID levels)
  • South Australia grew by 75% (albeit off a small base in 2021/22)

Common issues identified in Payroll Tax Investigations include:

  • Grouping of related employer entities
  • Contractors
  • Employees based in other states (requiring registration in other states)
  • Employers not being registered when data (e.g., STP) shows they are over the Payroll Tax registration threshold
  • Data sharing with other government authorities (ATO, WorkSafe, icare, etc.) contributing to identifying employers for targeted Payroll Tax Investigation activity

2. Employer Obligations (PAYG/SG/FBT) Audits and Reviews

Employer Obligations (PAYG/SG/FBT) audits and reviews were the second most frequent audit activity area, accounting for 12.55% of all Accountancy Insurance claims. Many accounting professionals find themselves unprepared when faced with these audits, primarily because they are not always directly involved in their clients’ payroll preparation.

Some businesses may not have stayed up to date with the latest developments and requirements regarding Superannuation Guarantee (SG) obligations, or they may be facing cash flow problems, leading to a high frequency of audit activity. The introduction of Single Touch Payroll (STP) has significantly aided the ATO in identifying instances of underpayments in SG.

3. Income Tax (Full/General/Combined) Audits and Reviews

Income Tax audits and reviews have consistently ranked among the top three categories of Audit Shield claim activity for the past two years. This category encompasses the ATO’s broader focus on holistic or full audits, or a combination of Income Tax and GST in a single audit. It does not include ATO High Wealth/Next 5,000 audits, which are included in a separate dedicated category.

Despite the ATO’s data matching capabilities, which allow for specific or targeted audits, the prevalence of general or broad-based audits remains significant, as evidenced by the consistent ranking of this category in the top five.

Other Significant Audit Shield Claim Activity Statistics

When comparing the activity of 1 July 2022 – 30 June 2023 to the previous financial year, here are other noteworthy changes in audit type frequencies:

  • Superannuation Fund Reviews: 116% increase (greater than pre-COVID activity)
  • ATO (High Wealth) Audits and Reviews: 18% decrease
  • Income Tax (WRE) Audits and Reviews: 26% increase
  • Income Tax (Rental Property) Audits and Reviews: 35% decrease

Audit Activity Outside of the Accountant’s Control

Interestingly, over 50% of the audit activity recorded by the Accountancy Insurance Claims Team between 1 July 2022 and 30 June 2023 were for claim types where the taxpayer (your client) and/or a bookkeeper may have prepared the lodged returns or managed the employer obligations compliance that were subject to audit activity.

Here is a breakdown of those figures:

  • Payroll Tax Investigations – 13.74%
  • Employer Obligation Audits and Reviews – 12.55%
  • BAS Audits and Reviews – 9.86%
  • ATO Excess Super Contributions – 5.55%
  • WorkCover – 4.85%
  • Land Tax – 4.53%
  • Stamp Duty – 0.81%

Total: 51.89%

This highlights the fact that many ATO, State, and Federal government revenue authority audits and reviews (including three of the five highest claim types noted) often involve the accountant only after the audit activity has started.

Proactive Strategies for Managing Audit Risk

While the prospect of an audit can be unsettling, there are several proactive strategies you can employ to manage your audit risk effectively:

1. Maintain accurate and up-to-date records.

Ensure your financial records, including invoices, receipts, and bank statements, are well-organised and easily accessible. This will not only simplify the audit process but also demonstrate your commitment to compliance.

2. Seek professional advice.

Engage with a reputable accounting firm to receive expert guidance on tax compliance and risk management. Our team at KeyPoint Accountants can help you navigate complex tax issues and ensure your business stays on track.

3. Conduct regular internal audits.

Periodically review your business’s financial records and processes to identify potential discrepancies or areas for improvement. This proactive approach can help you address issues before they attract the attention of the ATO or state revenue authorities.

4. Stay vigilant about tax changes.

Keep abreast of updates to tax legislation and regulations that may impact your business. Attend seminars, webinars, or consult with your accountant to ensure you are aware of any changes that require action on your part.

5. Consider Audit Shield protection.

Audit Shield is a tax audit insurance product that provides coverage for professional fees incurred during an audit. By having this protection in place, you can have peace of mind knowing that you have financial support should an audit occur.

Stay Informed and Prepared for Tax Audits

The Audit Shield claims activity data from 1 July 2022 to 30 June 2023 underscores the importance of staying informed about tax audit trends in Australia. As the ATO and other government revenue authorities continue to enhance their data matching and audit capabilities, business owners must remain vigilant and proactive in managing their tax compliance.

If you are concerned about the potential impact of audits on your business, or if you simply want to ensure that your company is well-prepared for any audit-related challenges, we encourage you to contact us today. Our Gold Coast Accounting Firm KeyPoint Accountants is ready to provide you with the expertise, support, and peace of mind you need to safeguard your business and succeed.

Contact KeyPoint Accountants for Business Accounting & Advisory
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Chris Dobbie

Chris Dobbie is the Principal of KeyPoint Accounting & Advisors, based on the Gold Coast, Queensland, Australia. Chris is a leading Certified Practicing Accountant (CPA) holding a Bachelor of Commerce (B. Com.), Accounting from Griffith University. Chris has over 22 years of professional accounting and taxation experience. Having stepped his way through this family business to now be Managing Partner, Chris, along with his expert team, look after a diverse client base ranging from medium sized businesses to national/multinational businesses. Chris is truly passionate about improving and growing his company's clients businesses, their lives and lifestyle, with a focus on innovative strategic approaches, and strong communication with clients. View Chris's LinkedIn profile.

About Keypoint Accountants: Innovative Gold Coast Accounting for Your Business

WE’RE ABOUT YOUR BUSINESS TRANSFORMATION: Our goal is to transform YOUR business with better strategic action. Our team delivers excellence in Accounting and practical strategic advice helping you to grow your business exponentially. We guarantee results.

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