Compliance
Audit
An audit is a formal ATO examination of a taxpayer's records and returns to check that tax, including GST, was reported correctly. It can lead to adjustments, interest and penalties.
A tax audit is a detailed check by the ATO of whether a taxpayer has met their obligations. The ATO may look at income, deductions, GST and PAYG reporting, super and other matters, for one period or several. It is more thorough than a simple data-matching check or a request for information, and it usually involves the ATO asking for specific records.
The ATO selects businesses for different reasons. It may compare the reported figures with industry benchmarks, data from banks and payment systems, or information from other taxpayers. Unusual patterns, such as large GST refunds, sudden changes in turnover or claims that differ from similar businesses, can lead to a review. Random selection and specific compliance programs also play a part. Being selected does not mean wrongdoing.
A typical audit starts with a letter or phone call, asking for records such as tax invoices, bank statements, sales records and BAS workings. The auditor then compares the records with what was reported. You are generally required to keep records for five years, and being able to produce them quickly makes the process smoother. A registered tax agent can represent you and communicate with the auditor.
There may be an interview or site visit, and the ATO has powers to access premises and records under the law. The taxpayer has rights, including the right to be treated fairly and to receive an explanation of the findings, set out in the Taxpayers' charter. It is important to respond within the deadlines, answer truthfully and keep a copy of everything provided.
If the audit finds errors, the ATO will issue an amended assessment or adjust the BAS figures, and may apply interest and penalties. The penalties depend on the level of care, and cooperation can reduce them. If the taxpayer disagrees with the outcome, they can object, and later seek external review through the Administrative Review Tribunal or the courts, subject to time limits.
Voluntary disclosure of errors before the audit begins can reduce penalties. Even after notification, cooperating and providing accurate information can have a positive effect. The best preparation is ongoing good practice, such as holding valid tax invoices, reconciling accounts regularly and ensuring GST coding in software is correct.
This page is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
The ATO writes to a retailer about repeated GST refunds over four consecutive quarters. It asks for purchase invoices supporting about $16,000 of credits, roughly $4,000 per quarter. The retailer produces tax invoices for most claims but cannot support $2,200 of claimed GST, which relates to $24,200 of GST-inclusive purchases without valid invoices. The ATO adjusts the BAS and charges interest, and considers whether a penalty applies.
Practical tips
- Keep tax invoices and other records for at least five years and organise them so you can retrieve them quickly.
- Respond to ATO requests within the deadline, and ask for more time in writing if you need it.
- Consider engaging a registered tax or BAS agent to represent you in an audit.