Over the past 12 months, we've seen a marked increase in audit and review activity from both the Australian Taxation Office (ATO) and State Revenue Offices (SROs).
At Longboard, this isn't something we're reading about in industry publications. It's something we're experiencing firsthand.
For much of the previous five years, income tax audits of our client base were relatively uncommon. In contrast, during the past year alone, we have assisted approximately 10 clients through ATO income tax audits and reviews. While reviews and verification requests have always existed, the volume and frequency of activity we are now seeing is significantly higher than anything experienced in recent years.
The trend aligns with the ATO's publicly stated focus on increasing compliance activity through expanded funding, enhanced data-matching capabilities and more targeted review programs.
What is the ATO Looking At?
While every review is different, several common themes have emerged from the matters we have been involved with.
Work-Related Deductions
The ATO continues to scrutinise work-related expense claims, particularly where claims appear higher than industry averages or where supporting documentation is incomplete.
In many cases, taxpayers are being asked to provide evidence that expenses were incurred, were work-related and were not reimbursed by an employer.
The days of simply estimating expenses have long passed. The ATO increasingly expects contemporaneous records and documentation to support claims.
Capital Gains Tax (CGT)
We are also seeing increased attention given to capital gains tax events.
This includes:
- Sale of investment properties
- Main residence exemption claims
- Subdivisions and development activities
- Cryptocurrency transactions
- Business restructures
- Share disposals
Many taxpayers are surprised to discover that transactions that occurred several years ago are being revisited as part of a review process.
Foreign Income and Overseas Assets
Foreign income reporting continues to be a major focus area.
The ATO now receives information from a wide range of international jurisdictions under data-sharing agreements. Foreign employment income, overseas rental properties, foreign bank accounts, investment income and capital gains are all areas receiving increased attention.
The assumption that offshore income is "out of sight, out of mind" is becoming increasingly risky.
State Revenue Offices Are Also Active
The increase is not limited to federal taxation matters.
State Revenue Offices continue to actively review payroll tax compliance, particularly in relation to contractor arrangements, grouping provisions and businesses with operations spanning multiple entities.
Many businesses remain unaware that payments to certain contractors can be subject to payroll tax, even where those contractors hold an ABN and invoice independently.
We expect payroll tax audit activity to remain elevated as state governments continue to seek additional revenue.
The New Reality: Short Response Deadlines
Perhaps the most noticeable change is the speed with which taxpayers are expected to respond.
Many of the audit and review notices we are seeing now provide only 10 days to respond with supporting documentation and explanations.
Whether the review relates to an individual tax return or a business matter, the timeframe can be challenging, particularly where records need to be retrieved from accountants, banks, employers, property managers or other third parties.
Businesses and individuals who maintain organised records are naturally in a much stronger position when a review notice arrives.
What Should You Do?
The increase in audit activity does not mean taxpayers should panic.
Most reviews are information-gathering exercises and can often be resolved quickly where appropriate records exist.
However, it does reinforce the importance of:
- Maintaining thorough record-keeping.
- Retaining receipts and supporting documentation.
- Keeping payroll and superannuation obligations up to date.
- Ensuring foreign income is correctly disclosed.
- Obtaining advice before significant CGT events occur.
- Seeking assistance immediately if an ATO or SRO notice is received.
Final Thoughts
If there is one message we would share from our experience over the past year, it is this:
The ATO is becoming increasingly proactive, increasingly data-driven and increasingly confident in identifying taxpayers for review.
For many years, audits felt relatively rare for small businesses and individuals. Based on what we are seeing at Longboard, that environment has changed.
Receiving an audit or review notice no longer means the ATO believes something is wrong. In many cases, it simply means the ATO wants verification. However, with response deadlines often limited to 10 days, preparation and accurate record keeping have never been more important.
If you receive a review or audit request from the ATO or an SRO, contact the Longboard team as soon as possible so we can assist you with the process and ensure the required information is provided within the required timeframe.
