Be on the front foot with our ATO audit activity trend predictions and how to reduce the impact when they come in.
Despite the temporary slowing in 2020 of the Australian Taxation Office (ATO) and other State & Federal government revenue authorities’ audit activity levels due to the Covid-19 pandemic, 2021 has already proved to be as busy as ever.
Our claims team recently published an article on tax audit claim stats all accountants in Australia will want to know that took an in-depth look at the five most frequent claim types amongst accounting firms offering Audit Shield in Australia. Now, our claims team have shifted their focus from the historical claim data from the last financial year, to predictions of what will happen in some audit activity areas over the next 12 months.
Our claims team predict that the following ATO initiatives will lead to an increase in related audit activity in 2021 and 2022:
Employer Obligation audits and reviews (PAYG/SG/FBT)
This is predicted to be the biggest claim category over the next 12 months. The ATO is not going to let this go away and they have the means to know who they will be targeting from the single touch payroll (STP) reporting from both the 2020-2021 financial year and real time at the end of each quarter in the 2021-2022 financial year.
Despite the superannuation guarantee (SG) amnesty ending in September 2020, the ATO will still be instigating audit activity on all the SG periods that were included in the SG amnesty. This is because many employers did not take advantage of the SG amnesty because of the business uncertainty around the Covid-19 pandemic and the outstanding SG liability from years gone by is still owing to employees.
The new SG penalty regime will also hit hard on SG audits going forward as per the ATO practice statement PS LA 2020/4 finalised in 2020. Although this received some publicity through the usual channels, the significance of the penalties attached to this may not have been widely realised. Essentially, if a business pays their SG late, they are obligated to lodge superannuation guarantee charge (SGC) statements. Under the PS LA 2020/4, if the SGC statements are not properly lodged and the ATO audits that business, the penalty is a minimum of 100% of the SGC payable. This is regardless of if the SG was paid late or not.
This sleeping giant drove us to make a change to our policy exclusion around ATO penalties in the latest policy version released in April 2021.
Next 5,000 streamlined assurance review program
Our claims team have been receiving claims since October 2020 as a result of the Next 5,000 streamlined assurance review program, which specifically targets private groups connected to individuals with a wealth of more than $50 million.
We expect this activity to continue increasing throughout the remainder of 2021 and well into 2022 as the program continues.
Cryptocurrency and share transaction audits
In 2020, the ATO seemed to be sitting back a little on this category and waiting to see how they could approach reviewing individuals, businesses and SMSF’s on their crypto assets. As a result, we have not seen a lot of audit activity in this category yet.
However, in May 2021 the ATO released a media statement to say they will be writing to 100,000 taxpayers whom they know have crypto assets, asking them to look back at their previously lodged returns. The ATO also explained their tax obligations when it comes to crypto assets. This is the ATO’s way of saying they will keep an extra close eye on those taxpayer’s next tax return once lodged and that is when we expect to see an influx of ATO audit activity in the 2021-2022 financial year.
Rental property expense claims
There was a campaign put out recently warning taxpayers that the ATO is cracking down on property investors. The ATO want to make sure taxpayers have the correct records for any rental property expenses after they noticed an increase across the board in rental property expense claims.
When the ATO puts out a campaign highlighting a particular category, they are in essence warning taxpayers that this is where they will soon be focussing their audit attention.
The ATO does take a ‘prevention is better than cure’ perspective but this does not always transpire to all taxpayers responding appropriately. The mistakes are not always deliberate but we do see the ATO focusing on this more and consequently, we predict an increase in audit activity in this category.
Work-related expenses – especially home office claims
This category is predicted to skyrocket for claims made by individual taxpayers in their 2021 income tax returns.
While in lockdown, work-related expenses for working from home naturally increased and the ATO gave all taxpayers the option to select a ‘shortcut’ method for calculating their working from home expenses (80 cents per work hour) for a simple claim. Alternatively, taxpayers could elect to go with the ‘actual cost’ claim method of claiming home office expenses with all record-keeping requirements.
Although the ‘actual cost’ method may lead to a larger claim, the ATO will be keeping an extra close eye on these claims and making sure that all record-keeping requirements are fulfilled and tapping those on the shoulder that may not have kept all of the required substantiation documentation.
Gig economy income: e.g. Uber/AirBNB (data matching)
The ATO continues to become more sophisticated with its data matching strategies. This is especially evident in the gig economy. The ATO will know if taxpayers are not declaring the additional income from their odd jobs through those data matching methods. This may be via bank records or information sharing with platforms like Uber, AirBnB and Airtasker.
For this reason, we expect audit activity in this area to increase exponentially over the next 12-months.
How to reduce the impact of ATO audits and reviews:
The ATO and other State & Federal government revenue authorities in Australia are not going anywhere. They will continue to find new and innovative ways to deal with those taxpayers that are not paying their fair share of tax or meeting their financial compliance obligations – of that we can be certain. This is emphasised throughout the media and reinforced by the continued support from the Australian Government both financially and through various data-sharing platforms.
As official reviews, audits, investigations and inquiries of taxpayer lodged returns and their taxation affairs in general continue to remain prevalent, the best course of action is to ensure that your accounting firm has a comprehensive tax audit insurance solution such as Audit Shield in place.
Audit Shield is an end-to-end tax audit insurance solution that covers accountants’ professional fees and the fees of experts, should your client be subject to ATO or other State & Federal government revenue authorities’ initiated audit activity in relation to lodged returns or financial compliance obligations – including JobKeeper payment audits and reviews (post payment).
Thousands of accounting firms have made the decision to implement Audit Shield. These accounting firms benefit, as they are not out of pocket for the additional work they need to undertake on behalf of their clients. They also avoid an awkward conversation regarding additional, yet necessary, professional fees incurred because of tax audit activity.
Without Audit Shield, accounting firms and their clients experience additional stress caused by audit activity instigated by the ATO or other government revenue authorities. It’s a win-win and no net-cost solution for your accounting firm.
DON’T BE A TOTAL MESS,
AVOID THE ATO STRESS.
To find out more about Audit Shield visit the Accountancy Insurance website or call our team on 1300 650 758.
Associate Director, Accountancy Insurance
- Audit Shield claims activity across Australia Jul-Dec 2022 - 30 January 2023
- Predicted ATO audit activity trendsfor 2021 & 2022 - 17 August 2021
- Tax audit claim stats all accountants in Australia will want to know - 14 July 2021