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10 Red Flags That Could Trigger an ATO Tax Audit of Your Business

10 Red Flags That Could Trigger an ATO Tax Audit of Your Business

With the ATO continually improving their data matching software and now even going so far as to monitor your social media, it is now easier than ever to inadvertently trigger a tax audit.  Even when accurate and detailed tax returns are submitted, you could easily be selected for a tax audit.


The cost and time involved with undergoing a tax audit is something that no business owner wants to be faced with. To make sure you are not one of them, take a look at these 10 Red flags that could trigger an ATO tax audit of your business.


Significant variances between information being lodged to the ATO is one of the number one reasons the ATO will request an audit of your business.


Performing above or below the industry

The ATO will analyse your tax return and compare it to your business peers. If the performance of your business is not consistent with your industry, this will be an immediate red flag to the ATO.


Living beyond your means

The ATO has not been quiet about the fact they are actively monitoring social media accounts. So if you are living a life of luxury but your paperwork says otherwise, you can expect some attention from the ATO.


Employing a lot of contractors

Hiring contractors can sometimes be inevitable, especially when working in certain industries. However, with changes over the years in superannuation payments, if you work with sub-contractors your tax return may be looked at a little closer.


You are in the news

This may seem fairly obvious, but often people do not think of the ATO as looking at anything beyond the numbers you submit. When in reality if you have made the news for reasons such as disgruntled employees or a sale of a large asset, you can be sure that they will be looking at your tax return with a fine-toothed comb.


International Transactions

Being someone who does business internationally doesn’t automatically mean you will be subject to an audit. However, if there are international transactions, especially to destinations that are high on the ATO’s watch list like tax havens, you may expect an audit from the ATO.


History of Late Lodgements

The main thing the ATO is looking for is that things do not seem in order. This can be as simple as having an extensive history of late lodgement. This signifies that your finances and accounting may not be in order, whether intentional or unintentional.


Failing to lodge FBT returns

If you have a business vehicle, be aware that the ATO matches information from the state vehicle registries against your tax returns, activity statements, and fringe benefits tax returns. If you fail to lodge an FBT, this will be a trigger for the ATO to send an audit your way.


Continually operating at a loss

If your business has operated at a loss for multiple years on end, you may find the ATO come knocking. It might be due to genuine reasons, but you can be sure the ATO will want to investigate it further.


Extreme fluctuations between years

The ATO is not just looking at what you have lodged this year; they are also comparing your businesses finances to previous years. If there are significant fluctuations in your finances from year to year, they will be likely looking at things a little closer.


Now a lot of the things listed above can occur in businesses with genuine tax returns and does not mean you will definitely be undergoing an audit. But each of these factors, whether singularly or combined, can increase the likelihood that the ATO may be taking a closer look at your finances.


Want some peace of mind? Book a Free Business Consultation with our experienced Accountants in Perth. They will make sure that your business’s tax return is a painless exercise this year.