GST AUDITS

The Tax Office has advised that GST audit activity is to be increased.  Some statistics are given to explain this:

                                                                                                     % for                       % for Medium

            Errors                                                                            SME's                              businesses

            BAS preparation                                                          58%                                            46%

            Accounting systems                                                   14%                                            17%

            Related party transactions                                        6%                                              7%

            Incorrect supply status                                                7%                                            11%

Errors are commonly systemic or transactional and more prevalent in:

- GST free activities

- Property transactions

- Sale of a business and the 'going concern' requirements

- Entry of documents/invoices

- Unusual transactions

Prevention is better than care, so:

- check with larger or abnormal transactions

- reconcile returns, check the GST detail report

If the ATO identifies a risk or just decides to carry out a random check, it will usually:

- phone and request say the GST Detail Report for a particular quarter, or

- send a letter saying that some particular detail is a concern and requires an explanation or substantiation

- it may then escalate to a full quarterly audit, and if not satisfied with the records or the system, perhaps audit a whole year.

Our approach is to:

- clarify the issue by speaking with the auditor

- see if we can limit the scope

- deal with the requests within agreed timeframes

- determine whether the argument is about facts or an interpretation

- avoid a confrontation and stay professional

- make a voluntary disclosure if need be, and so reduce penalties

The penalties can be high:

- failure to take reasonable care           25% (of the adjustment)

- reckless                                                         50%

- unintentional disregard                         75% or more

With a voluntary disclosure, up to 80% of the penalty may be remitted.

We recommend :

- reduce the risk, check the GST reports and BAS before lodging

- mitigate risk, check unusual transactions, seek advice beforehand

- audit insurance (we have submitted a proposal for our clients to an insurer).  The insurer says 28% of all claims are for GST matters.