Actions you need to take when you are contacted by the ATO for a review or an audit
If you received a letter from the ATO with “Please explain” type or informing they are undertaking a “Tax Audit” for you and/or your business, what you need to do first is “being calm”. A panic mode does not help at all. Then do follow steps below in a timely manner.
- Tell your tax agent to gather all the information you provided for the relevant period. But not request any work commencing by them for now. A lot of cases, your tax agent’s work triggers problem.
- Find a good tax adviser (mostly tax specialist accountants or a tax specialist lawyer ) and discuss your situation. Don’t seek any advice from those “cheap tax return” guys. You will waste your time and money with them and may end up heavy financial loss. Tell your adviser everything they ask for the matter. People trying to hide even to their advisers make things worse. Be honest to them. Good professionals will protect you.
- Gather information including bank statements, accounting books etc. If you lost bank statements, you can get from your bank up to 10 years back depending on which bank you have been dealing.
- If you don’t have accounting book (such as MYOB), then you need to think about to build again based on what you have. Bank statements will contribute may meaningful information for this job. Consult with your new accountant or lawyer for the job. They will help you.
- If you think the ATO targets tax on non-income nature such as money you borrowed or given by your parents, then you need to have valid loan documents or your parents’ bank statements proving the money came from them.
- Tax lawyers can play important role in cases of grey areas of tax law. They are good at to build so called “reasonably arguable position” against the tax office’s decision.
- If your lawyer or accountant (ideally working as a team for you) found that you need to pay additional tax, then you need to think about a good excuse for not paying heavy penalties and ATO interests (it is called SIC – Shortfall interest charge). Sometimes, penalties plus interest is bigger than the base tax amount you need to pay. If you have a legitimate reason (usually personal circumstances beyond your control), then the ATO may waive the penalties and even interests by way of the Commissioner’s exercise of his discretional power. Again, the submission letter from your tax adviser plays important role. They are good at finding arguable position for you.
- Finally, be very careful with so called ‘tax experts or specialists’ heavily advertising online. Some of them are really good at stripping your money by taking advantages of your situation. If you think they scare of you, then spend a bit of more money to have a second opinion. Tax cases can be quite costly not only because of the tax bill but because of professional fees as well. If you are not sure whether you have chosen a right professional, then always Google to see if there are any feedbacks of their services.