ATO audits and reviews are part of business reality for a large number of business taxpayers. Despite audits being “business as usual”, they are often a stressful experience and can become costly and protracted.
One of the reasons why audits are so stressful is the feeling among taxpayers that they have no control over what is taking place; they find themselves in a position where they have to wait and see what the next lot of questions will cover. Thus, the resulting feeling is of uncertainty and lack of control. Regaining a level of control over the process is therefore the key to making the audit process more efficient and directed from a taxpayer’s perspective, and achieving an outcome that is more satisfactory for the taxpayer.
The question is: what action can you take to put yourself in a position of control? These are the processes and principles that we have been practicing and recommending to our clients who find themselves being subject to an ATO audit or review:
- Have a face to face meeting(s) with the auditors early on. Establish a relationship of trust and cooperation. Ensure that the issues are identified, relevant facts are properly explained to the ATO and any blanks in the factual scenario are filled in, so as not to put the ATO auditors in a position where they make assumptions, which can work against you and you will then have the task of disproving.
- Consider whether the issues under review can be narrowed down. This requires a strategic approach to negotiation with the auditors and may require several meetings. Once the issues are narrowed down you will have a better opportunity to address those issues with all the due care they require.
- Keep the lines of communication open. This will assist to promote a better understanding between you and the ATO auditors. It will enable you to ask for and receive regular updates in relation to the progress of the matter and to better determine whether there are any gaps in the ATO’s understanding of the facts, which can then be filled and resolved by provision of relevant evidence. In addition, you will be better informed of the ATO's thinking on technical positions. Overall, feeling more in control of the process results in a much more positive experience for the taxpayer.
- Evidence, evidence, evidence. The importance of evidence preparation cannot be emphasised enough. Most reviews and audits eventually come down to the provision of evidence that is credible and persuasive enough to support the position you have taken. We would generally not recommend taking a default position of limiting the documents provided to the ATO only to include the items requested by the auditor. The auditor in all likelihood does not know the extent of the information available to you that can be of assistance to establish your case, but you do and providing such information can be a key to an early resolution of the matter. You also need to consider whether any evidence should be taken from witnesses early on during the audit, such as expert evidence to support the position taken by you, or evidence from employees or other stakeholders who were involved in the transaction under review. As often happens, employees may move on, making evidence gathering at a later point much more protracted and expensive. Having all the evidence properly collected and presented early on will allow you to put forward a persuasive and properly supported case and assist you to finalise your dispute sooner.
- Keep in mind whether and when alternative dispute resolution (ADR) should be undertaken during the review or audit. Once you decide that it is time to engage in the ADR process, ensure that you choose the process that is right for your case and your desired outcome and which will serve you best. Ensure that the timing is right for you and that all your supporting evidence is available. If you are being assisted by an external adviser, ensure that your advisor is experienced in conducting ADR processes with the ATO.
- Know the lines of escalation within the ATO. If you feel that the ATO auditor is not considering your matter properly, is not receptive to ADR, that there are unwarranted delays or any other issues that cause concern, there are appropriate ATO escalation procedures that can be utilised.
The aim of the above is to give an overview of the strategy and process which, if constructively engaged in by the taxpayer and by the ATO, can make the review or audit much less stressful and more efficient and effective. That said, however, each audit process is different and there is no one size fits all solution that can be offered. Having an experienced and effective team is important in ensuring the process is strategic, time and cost effective, and less stressful for the taxpayer.