Governance & Audits

So, the Australian Taxation Office has signalled an intention to audit your organisation.  The first step is to understand the nature of the ATO’s action.

If the initial ATO contact is by way of standard questionnaire or risk review, it generally means your organisation has been selected at random or as part of a targeted industry or other profile review, rather than because they have identified a specific issue.

On that other hand, if there is going to be a fully-fledged audit, it is critical to establish whether it has already commenced or is about to.

Regardless, the first step is to contact your Specialist Tax Group Advisor.

Strategies we may utilise when managing audits are dependent on the specific details of each case, whether any issues are (or are expected to) be uncovered and the potential value of the exposure(s). These can include:

• Preparing voluntary disclosures if the issue is clearly non-compliant
• Preparing a “reasonably arguable position” if the technical arguments are in favour of the taxpayer for those ‘grey’ issues
• Assessing whether the issue is beyond the ATO’s reach due to being “out of time” (where no fraud or evasion has occured)

In our experience, the most important strategies in an audit are:

1. Communication

All communication with the ATO goes through your Specialist Tax Group Advisor to avoid confusion and to ensure the Audit is finalised as soon as possible.

2. Handling of information

The key strategy in all Audits and Investigations is to specifically provide only the information requested, nothing more, nothing less. Providing excessive information that hasnt been requested by the ATO will not only prolong the review of information (and the audit) it may also result in questions on other areas that should not have been part of the audit scope.

3. Deciding when to settle

In the case of significant and complex or protracted cases, it is often better to settle rather than continue disputing a matter because of principle.

Nonetheless, the costs of continuing a dispute need to be weighed against the uncertainty and stress of prolonging a protracted dispute.

It is important that your Advisor is conscious of your position relating to any dispute so that the correct course of action can be taken at the right time.

The ATO has committed to conducting tax risk governance reviews of the Top 1000 businesses operating in Australia, plus the Next 5000 private groups, by 30 June 2023.

The ATO is seeking assurance that:

• Appropriate tax (all taxes, including state based employment taxes) risk and governance frameworks exist and are applied in practice;
• None of the tax risks the ATO have flagged to the market are present;
• The tax outcomes of atypical, new or large transactions are appropriate;
• Businesses can explain, to the ATO’s satisfaction. the various streams of economic activity and how they are treated for tax.

Specialist Taxes Group is able to apply skills developed through many years working in and with businesses to bring your risk and governance framework to a level that reduces your indirect tax risk and provides the ATO with the assurance it seeks.

From an indirect taxes perspective, the key ATO focuses include:

1. People

• Do have the capacity to properly carry out your tax compliance obligations;
• Are your employees’ roles and responsibilities adequately documented;
• Do your employees’ goals and objectives include risk management and governance metrics;
• Is there a properly documented process for tax and non-tax staff to identify, escalate, and resolve tax risks;
• Is there a documented process to manage the tax aspects of significant, or new transactions;
• Are your staff properly trained in their areas of expertise;
• Does your business maintain a training register; and
• Is senior management engagement in all of the above?

2. Systems

• Does your business maintain a systems architecture diagram or overview that identifies the wing-to-wing processes for transactions flowing through your accounts;
• Are your general and application controls, both automated and manual, documented;
• Is there a properly documented process to ensure the integrity and security of your data;
• Is there a documented program of regular testing of your system controls;
• Has there been an internal or external review of your systems in the previous two years?

3. Processes

• Are your compliance processes properly documented and approved by senior management;
• Does your business maintain GST, FBT, employment taxes manuals;
• Does your business conduct a variance analysis between BAS reported numbers and accounting numbers;
• Are reports prepared for management, for example, the tax leader or CFO, explaining variances, errors, unclaimed GST, trends, risks identified;
• Are processes regularly tested to ensure that the correct processes are followed; and
• Does your business maintain a tax risk register?

Whilst the ATO acknowledges that an organisation’s processes and documentation should be fit for purpose and one size does not fit all, its expectations of your commitment to compliance, and your Board’s involvement and engagement, are high.