It’s coming towards tax time again and you know what that means! Not only will you be needing to get everything in order to file your taxes, but you could be up for an audit.
There are five types of audits that small businesses need to be aware of, because they can come up at any time.
Super Audit (SGC)
The superannuation guarantee is the compulsory super amount that an employer must pay into their employees super fund as stated in employment conditions. This super rate is 9.5% of your employees’ ordinary time earnings (OTE), not including overtime payments.
These super payments are generally paid in conjunction with income; however, payments are only required quarterly, each quarter with a specific due date.
The Super Guarantee Charge (SGC) is essentially a fine that is incurred to employers who have failed to pay this super guarantee to their employees into their super fund by the due date.
The ATO charge consists of three parts:
- Super guarantee shortfall amounts – the amount an employee was owed in super, but was unpaid.
- Nominal interest on shortfall amounts – currently 10%
- Administration fee – $20 per employee per quarter
The SGC scheme runs on what is essentially an honesty system, where an employer who misses a payment submits all necessary payments and paperwork to the ATO independently.
Failure to lodge SGC statements and payments may lead to financial penalties, director penalty notices keeping the director of the organisation liable, or a garnishee notice.
Be aware, if you fail to pay correct super contributions, your employees may notify the ATO for further investigation that can snowball into other subsequent audits.
BAS / GST Audit
A GST or BAS Audit is conducted by the ATO to ensure that small Australian businesses are fulfilling their legal obligations and are operating within the system. These are simply audits of the GST and BAS statements that you are (or are not) filing as an operating, GST-registered business.
A GST or BAS audit may be triggered by even just one of the following:
- Failure to lodge BAS statements
- Large GST refunds
- Over-claiming GST input tax credits
- Under-reporting GST
- Businesses that report strongly different GST amounts than other industries
- Sudden change in business to international financial arrangements
Income Tax Audit
An income tax audit from the ATO focuses on whether all income declared, accurate deductions and tax-related obligations have been calculated and reported correctly.
There are a number of things that can trigger an income tax audit, including:
- Running a primarily cash business
- Superannuation guarantee charge incurred
- Inconsistent income lodgements
- Discrepancies between tax and BAS statements
Fair Work Audit
The Fair Work Ombudsman is in place to ensure that employees are paid fairly and working within satisfactory conditions. It is often young employees who are new to the workforce, who are most vulnerable to poor working conditions and underpayment due to lack of experience and awareness of their rights.
Your business may be audited if you’re working in an area or industry that’s had a surge of reports received by the Fair Work Ombudsman, or if your employees have submitted complaints against you.
If you are subject to a Fair Work Audit, you’ll be scrutinised for:
- Wage records including pay slips
- Correct payment for work
- Classification of workers
- Overtime payments
- Provisioned meal breaks
Cash Economy Audit
The ATO defines a cash economy as all legal transactions which are not disclosed and result in evasion of tax. It’s also known as a hidden activity as it’s difficult to quantify.
In partnership with tax practitioners and small businesses, the ATO has developed this audit to assess tax evasion within a cash economy.
When your business is selected for a Cash Economy Audit, they will make contact via phone to arrange a meeting to discuss why you were chosen and how the audit will be conducted, explain your obligation and check records.
An assessment of your cash spendings involves sampling, estimating or judgment by:
- Using small business benchmarks
- Using taxation statistics
- Information in financial records provide during the audit
- Statements or disclosures you provide
- Information from third parties, such as banks and suppliers
- Information from previously lodged returns