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In recent years, the Australian Taxation Office (ATO) has overhauled its broad-brush approach to undertaking tax audits – instead opting for a targeted risk-based approach. This approach would see a high number of initial audits to gain “justified trust” that a taxpayer is paying the right amount of tax, followed by an ongoing focus on those deemed to be “high risk”.
There are a number of factors that would influence the determination of a business as high risk, with a key one being a lack of quality financial systems and processes.
For businesses with proven systems and processes in place, a quick check-in from the ATO every now and then may be all that’s needed to ensure ongoing compliance.
However, for businesses that don’t inspire much confidence, the risk of regular audits and the potential for penalties is a lot higher.
Of course, small businesses are not expected to have the same complexity of systems as an ASX-listed corporation. What’s important is that the business takes reasonable steps to ensure the accuracy of its numbers and financial reporting.
One area that frequently raises red flags is when there is a discrepancy between numbers reported on lodged business activity statements (BAS) versus annual financial statements.
To address this risk in a way that is achievable for all businesses, the ATO has developed a nifty GST analytical tool (or “GAT”). The GAT assists accountants and their clients in identifying and explaining these discrepancies, and using the tool, and obtaining a reasonable result contributes favourably to the ATO’s overall assessment of your business and GST risk.
How the GST analytical tool works
The GAT is a detailed set of spreadsheets that have been configured to unearth discrepancies between profit and loss (P&L) statements (or management accounts) and the sales and purchases amounts reported on that year’s BASs.
If, for example, the P&L shows a revenue amount of $100 but the BASs for the year show the revenue was $80, we need to understand and explain it. Often, there are legitimate reasons why there is a difference between the two (such as timing differences between accounting and tax) – and the GAT makes it much easier to locate and explain these.
The benefits of the GAT are two-fold because it makes compliance-checking faster and easier while helping to reduce the risk that a future audit will uncover discrepancies that then leads to penalties and more frequent audits.
This is especially valuable for small businesses with limited systems that may be easy to reconcile in the moment but difficult to marry up at the end of the year.
Instead of incurring fees to have an accountant by your side during a tax office review, engaging an accountant to run the numbers using the GAT would allow you to have everything prepared if the ATO comes calling. It’s a cost-effective way to gain assurance over your GST and could be considered insurance for the future in the event of an audit.
For accountants, the GAT is essentially another tool in our toolkit that we can use during a potential audit to give the ATO confidence that your business’s accounting practices are above board.
With corporate responsibility high on the agenda for many businesses this year, we are pleased that the ATO has offered a simple way to help people be more proactive in getting ahead of where they need them to be.
HOW CAN RSM HELP?
To learn more about how RSM can assist with your business’s BAS, tax returns, or benchmarking your financial systems and processes, contact your local RSM office.