Are you the type of small business owner who crosses their fingers and hopes whenever it comes to tax records? If you are, you're not alone, although it goes without saying that it is not the best course of action to take. You may have been doing this for some time and have become a little complacent, but then you receive a letter in the post notifying you that your business has been selected for a tax audit. After the initial panic, what do you need to do next?
Firstly, you need to get organised as soon as possible, because preparing for this type of audit is not straightforward. Set up systems to make sure that future records are better kept and this may stand you in good stead if the auditor can see that at least you are turning over a new leaf. Get an accountant who is an expert on your type of business and somebody who has already dealt with this type of audit for others.
Why Has This Happened?
You may have been selected because some of the records submitted have triggered a red flag at the ATO. It's difficult to say exactly why, but the authorities have complicated algorithms that are designed to uncover anomalies. Maybe your figures were quite a bit different to those that are normal in your industry. On rare occasions, an audit may be triggered by a disgruntled client or former employee, who may "suggest" that the ATO has a look at you.
What to Do Next
Have a look at the returns you submitted and specifically the one that have triggered the audit. The notification letter will tell you which one this is. It's best if you can go over all those transactions again, to see if you omitted some figures. If you "estimated" some of it because you couldn't find the receipts, now is the time to have a more detailed look to hopefully uncover them.
You will want to be sure that you are entitled to all the deductions or credits you claimed and that you identified all of the income you should have.
In case you weren't aware, the tax authorities require you to keep all of your documentation and receipts for up to 5 years, in case of an audit like this. If you don't have them, then the auditors will likely generate their own figures and this is not always a good scenario for the taxpayer.
Ask an accountant to give you some very specific advice in advance of the audit and to see whether they will sit in with you during the meeting, for support.