Australians owe almost $45 billion in unpaid taxes – and the tax office is coming to collect. Collectable debt rose by 69 per cent to $44.8 billion in 2021/22, from $26.5 billion in 2019 before the COVID-19 pandemic hit. Following in from the recent budget, the Labor government has provided additional revenue and resources to the ATO to recover debt.

Gathering that money will be the Australian Taxation Office’s top priority in 2022/23 as it builds on earlier debt recovery efforts to “manage” resistant taxpayers. “As the economy recovers, one of our key priorities is to address the collectable debt that has accrued over the past three years,” the ATO said in its annual report.

Small businesses continue to account for the majority of collectable debt, and this will be the focus for debt recovery. Small businesses owe the ATO $29.3 billion while individuals owe a total of $4.2 billion. Of the monies owed, most is activity statement debt followed by income tax and superannuation guarantee charge liabilities.

The federal government will increase funding to the Australian Taxation Office to the tune of millions of dollars to beef up the tax office’s compliance programs, including those directed at the shadow economy and income tax deductions.

The additional funding, included in the federal budget, comes at a time when the tax office is already resuming its pre-COVID enforcement activities, including collecting small business debts and issuing director penalty notices. The ATO will see funding for its Tax Avoidance Taskforce increased by approximately $200 million per year over four years, effective July 1, 2022, while the taskforce itself will also be extended by another 12 months through to July 2025.

What can happen if you are audited by the ATO?

Being tax audited by the Australian Tax Office (ATO) is an uncomfortable and expensive risk every Australian business, no matter the size, must face. Although diligent bookkeeping may serve as a basic preventative measure for an audit, it may never provide the protection you are looking for.

The ATO’s cross-checking technology is rapidly improving, and each year, according to ABC News, the ATO contacts approximately 2 million taxpayers about their returns. Not only can a tax audit impress a significant financial and emotional burden on business owners, the ATO can also pass hefty fines.

Tax Audit insurance provide businesses with relief of payments, up to a prescribed amount, from the professional fees that you are required to pay should you be selected for an audit.

What triggers a Tax Audit

Tax audits are stressful but what triggers them? And what can you do to avoid being audited? The following lists isn’t an exhaustive list, but some of the most common reasons for an audit could include:

  • not declaring income – while it’s true at tax time the ATO will already have lots of your income information, it’s still your responsibility to make sure you’ve declared everything you’ve earned
  • mistakes and inconsistencies – unusual deductions, excessive spending on deductions, sharp drops or wild variations in income from year to year
  • international transactions – even in today’s world of global business and banking, money regularly going in and out of foreign bank accounts will make the ATO stop and take a closer look
  • your income and lifestyle don’t match – you tell the ATO you’re only earning $50,000 per annum, yet you drive a $150,000 car and vacation three times a year overseas? This may trigger the ATO, and they’ll want to take a close look at your tax return
  • claiming deductions for which you’re not entitled – this is a big no-no
  • not paying the correct amount of superannuation to employees – the ATO really doesn’t like this and they will come knocking
  • your BAS, GST and tax returns don’t add up
  • your business is always running at a loss – even if there’s good reasons why, if you’re still running at a loss three out of any five years, the ATO will want to take a look at your records

What is tax audit insurance?

Tax audit insurance is an insurance policy designed to help cover the costs your business incurs when it’s being audited by the ATO. Even the smallest of tax audits can be time consuming with responses, phone calls, meetings and the preparation of documents taking days, weeks and, in some cases, even months. A tax audit may also cover more than one reporting period, thereby considerably increasing the costs. This can all prove expensive for your business in time, resources and dollars.

While the exact insurance cover you have depends on the policy you’ve purchased, some of the things your audit insurance should cover include:

  • accountant’s fees
  • other professional fees – bookkeepers, financial advisers, lawyers or solicitors etc
  • tax agent fees
  • expenses incurred during the audit – these costs may run into the tens of thousands of dollars

Tax audit insurance typically won’t cover:

  • fines or taxes imposed upon you or your business
  • your time or wages
  • lost jobs, or opportunities missed due to the tax audit
  • your employee’s time or wages
  • returns that haven’t been prepared or reviewed by a tax agent prior to lodgement

At Camden Professionals we are offering audit insurance for our clients so our fees are covered if they get an audit, it’s a small tax-deductible price to pay as responding to the ATO can be time consuming and costly. Contact our office if you would like to discuss the benefits of audit insurance.

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The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

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