In the next year, the ATO will begin random audits of hundreds of small and medium sized businesses, as well as, individual tax payers to estimate the tax gap. ‘The tax gap is the difference between the estimated amount of tax theoretically payable assuming full compliance by all taxpayers, and the amount actually reported to us (or collected by us) for a defined period’ according to the ATO. An ATO audit can cost your business thousands of dollars.
Who will be audited?
‘Only in instances where we identify strong reasons to believe the taxpayer has not complied with their tax obligations, would the taxpayer then be escalated to audit,’ an ATO spokesman said in response to Fairfax Media.
Unpopular process
Tax auditing can be an unpopular process with taxpayers. ‘If they [taxpayers] are perfectly compliant, then they are not going to appreciate somebody knocking on their doors and wanting to go through everything,’ said Inspector General of Taxation Ali Noroozi last year.
‘It is considered a necessity to—go out to a sizeable sample, in the thousands at least, and basically audit those individuals and businesses without any view as to their risk profile’ said Commissioner of Taxation Chris Jordan during the Standing Committee on Tax and Revenue 2014. Mr Jordan understands that thousands are inconvenienced and that honest tax payers may feel offended. ‘Such an audit might actually uncover some wrongdoing, but during this process the person who is being audited should understand that this is actually the method to determine tax gap and they are helping the system’ said Chair Mr John Alexander MP.
Let’s look at the latest available figures from abroad. The United States Internal Revenue Service (IRS) estimated their 2006 tax gap to be $AU625 billion ($US 450) while the United Kingdom estimated the tap gap (including income tax) to be $AU72.7 billion (£34).
The Figures
According to Fairfax media, the ATO has released their $3 billion estimation of the tap gap that is blamed on tax evasion and misreporting. Importantly, this figure excludes income tax. If income tax is included, this figure could go into the tens of billions of dollars.
Key Findings
Here are some key findings from the ATO’s measurement of tax gaps in Australia, 2014-15:
- ‘net GST gap, in 2013–14, is estimated to be $2.7 billion or 4.9% of revenue’
- ‘the net luxury car tax (LCT) gap in 2013–14 is estimated to be $15 million or 3.3%of the theoretical tax payable’
- ‘The PAYG withholding gap in 2011–12 is estimated to be $3.1 billion or 2.1% of income tax withheld.’ This estimates the amount of ‘the amount of tax that should have been withheld (by employers) from salary and wages paid to employees’
The team at Fortis Accounting Partners is currently working to provide our clients with information regarding Tax Audit Insurance. This insurance covers the accounting, legal and other professional fees involved in assisting you during the process.
Auditing can remind us that it is important to stay tax compliant. At Fortis Accounting Partners, we can help you maximise returns while staying tax compliant.
If you have any queries regarding tax, please don’t hesitate to get in touch with the team on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
