With tax revenue projected to fall short of previous projections
by $115 billion, it is prudent to expect the Australian Taxation
Office (ATO) to take a more aggressive stance. Are
you prepared should the ATO decide to audit you or your
Prime Minister Kevin Rudd has told reporters:
''The truth is the global recession in general and
the collapse in China's growth in particular has produced a
$115 billion fall in Australian tax receipts to the Government...
That means an impact directly on our budget, that means, therefore,
of course, a temporary budget deficit.''
What does this mean for you?
Taxpayers can expect the ATO to act more aggressively to protect
its dwindling revenue base. This may mean a larger number of tax
audits and a greater willingness to proceed to tax litigation.
Taxpayers should review their tax affairs so as to be prepared for
an audit, and should voluntarily amend assessments that are found
to be understated, so as to avoid or lessen the application of
interest and penalties. Pre-emptive action limits the time for
which interest may be charged, and the ATO is less likely to impose
penalties where a taxpayer volunteers information, rather than
waiting for the ATO to find it in an audit.
A tax audit involves a thorough examination by the ATO of a
taxpayer's affairs. The courts have confirmed the ATO's
right to conduct audits. Audits may begin by focusing on a
particular industry and then targeting individuals or businesses
who are found to have tax affairs outside the "norm". Tax
audits can lead to tax litigation where disputes arise between the
audited taxpayer and the ATO over the correctness of tax
In carrying out audits, the ATO relies on powers given by
section 263 of the Income Tax Assessment Act 1936, which allows ATO
officers full access to all buildings and all documents required
for the purposes of the taxation law. This extends to documents
held by solicitors, accountants, banks and other advisers and to
court documents. The ATO's access to documents is, however,
restricted by the doctrine of legal professional privilege.
Documents prepared by lawyers in contemplation of legal proceedings
are generally subject to legal professional privilege and cannot be
accessed by the ATO. Taxpayers need to understand what their rights
and obligations are when the ATO commences an audit or
How long does the ATO have to challenge a tax return?
Individuals and small businesses can have their tax assessment
amended by the ATO for up to 2 years from the date of the original
notice of assessment. Other taxpayers are subject to a 4 year
review period. If the ATO audit reveals that a taxpayer has
underpaid tax, and an amended assessment is issued, the taxpayer
can also be subject to interest and penalties. The level of
penalties will depend on whether the ATO determines that the
taxpayer has acted with reasonable care in submitting its tax
return, with recklessness as to the application of the law to it,
or with intentional disregard for the tax law. If fraud or tax
evasion is involved, the ATO can amend a taxpayer's assessment
at any time, and is not limited by the usual 2 or 4 year periods
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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