If your business received COVID-19 support payments, such as from the Federal Government’s $90 billion JobKeeper program, you may face an ATO tax audit. That office is expected to focus on employer obligation audits and reviews this year. At the height of the pandemic between April and September last year, 3.6 million workers received the JobKeeper wage subsidy.

The key data the tax office may scrutinise about employers of JobKeeper recipients include:

  • Employee details
  • Bank statements
  • Payslips
  • Employee nomination forms for JobKeeper
  • Employment declaration forms.

Auditors are looking for inconsistencies in the data you’ve given them, and they’ll have ‘live’ information about your business if you’re using SuperStream. Given the pandemic has made for stressful times, it’s easy to make errors. The ATO has already noticed compliance issues with businesses accepting JobKeeper last July.

Whether you’ve intentionally or accidentally claimed for more than was your due, the ATO may still fine or charge your business. For larger companies, check out the Australian Securities & Investment Commission’s advice on COVID-19 implications for financial reporting and audits.

Other reasons you could be audited

Even if you didn’t opt for JobKeeper, factors that could trigger a tax audit include:

  • Running a cash business, particularly if your expenses are much higher than your declared income
  • Issues with pay-as-you-go tax payments or fringe benefits tax
  • Achieving below or above the ATO’s financial performance benchmarks for your industry
  • Underpaying your staff in superannuation
  • Finding a mismatch between your income and lifestyle, particularly if you have expensive cars and properties
  • Transacting internationally, which could indicate you’re using a tax haven or doing a material funds transfer
  • Not having lodged your tax return in the past
  • Your tax return is at odds with your BAS
  • Consistently reporting operating losses.

Be mindful that if your businesses substantially changed its activities due to COVID-19, you might not be able to claim as extensively as you’ve assumed. You’ll need to explore the newly enacted similar business test (SiBT). That’s according to RMIT University tax and law experts, who say it means established businesses could face “similar limitations as start-up businesses”.

Audit-proofing 101

To prepare for an audit, keep above board and declare all your taxable income on your tax return. That means your business takings, capital gains (think property and shares), foreign income you receive from shares, property or work, plus bank interest earnt. All your tax deductions should relate to your assessable business income for the financial year in which you’re claiming. Prove those purchases with receipts or documents. You’ll find more tips from the ATO here.

Don’t duck for cover

So, if you’re tapped on the shoulder for an audit, you may think you’re prepared. However, it’s not just the tax office by federal and state agencies that could also do random audits, investigations, enquiries, and review. To respond to a compliance audit or an audit of a previous tax return, your businesses will face costs such as:

  • Professional fees for accounting, tax agent, bookkeeping, financial advisers, lawyers, etc. (you may need specialists)
  • Covering your expenses during the audit
  • BAS/GST compliance
  • Workers’ compensation and WorkCover
  • Fringe benefit tax
  • Record keeping
  • Superannuation guarantee and compliance
  • Income, land as well as payroll tax.

It’s not unusual for tax audits to cost a business tens of thousands of dollars, even if you’re in the clear. But having tax audit insurance typically covers the above bullet points, except:

  • Your employees’ time or salaries
  • Audit fines or taxes
  • Business opportunities lost thanks to the tax audit
  • Tax returns your tax agent hasn’t prepared or reviewed before they’re lodged.

We can explain how insurance can protect your business when you receive a ‘please explain’ demand. Tax audit insurance will help minimise your risks.

Useful links:

Summary of ABS data on the impacts of COVID-19 on Australian Businesses

KPMG: Australia: tax developments in response to COVID-19