August 7, 2014

ATO Compliance – Recovery Action

In recent months we have noticed increased activity by the ATO in respect to organisational compliance. 

The main activities have been:

  • Audits
  • Garnishee Notices
  • Wind Up notices

ATO Audits

At a recent seminar presented by the ATO in Wollongong, entitled ‘Tax Audits – the good, the bad and the ugly’, the message was loud and clear, the ATO will be targeting organisations who have failed to adhere to their compliance requirements.

The four pillars of compliance activities are:

  • Registration
  • Lodgement
  • Reporting and accuracy of reporting (data matching)
  • Payment.

Those most likely to be audited are:

  • Cash economy businesses
  • Businesses with continued losses
  • People who have things missing, such as;
    • Documents lodged that are incomplete
    • Non-lodgment of documents
    • Non-remittance of payments
  • Households on low income
  • Mismatches between reported data and third party data.

The ATO uses benchmarking and data matching tools when determining which organisations to be audited. 

Benchmarks such as key financial ratios are used to compare businesses against each other. They are updated annually and are a fundamental method of risk assessment within audit selection. 

The ATO uses data matching to identify any anomalies. Such data matching includes merchant data, motor vehicles (expensive cars vs affordability based on disclosed income), real estate, PayPal/eBay, gambling (government organisation reports) and offshore transfers. These can provide strong evidentiary basis for the requirement of an audit.

The ATO recognises that audits can be very expensive and disruptive for a client. So when profiling a client or an accountant, they want to ensure there is a purpose for the activity and will make a go / no go decision at the end of profiling.

There are two types of audits:

  • Desk audits
  • Field audit

Desk audits are of a limited scope and short turnaround time, generally dealing with lodgement,specific risks or benchmarking issues. Such audits are often conducted by compliance staff who generally follow set procedures.

Field audits are more complex, whereby the organisation will receive a questionnaire for completion prior to a meeting. It is recommended that both clients and their accountants be proactive and deal with any issues they identify following completion of the questionnaire. An interim report is generally issued following a field audit which provides an opportunity for the client and and their accountant to raise issues with conclusions reached by the ATO. These issues are considered and a final report is issued. Generally the final report will result in a payment due by the organisation that it had not previously anticipated. The ATO indicated its openness to discussing debt sustainability, i.e., how the debt can be paid. 

So, what can you do?

How to prevent an audit:

  • Make sure clients are not attractive audit candidates
  • Ensure correct industry codes are used
  • Remind clients of benchmarks / business norms
  • Maintain proper records
  • Don’t just become a lodgement service for your clients

How to prepare for an audit:


  • Have consistent processing for handling client records
  • Proper documentation – instill good habits on your clients
  • Businesses are individual – there are often explanations for how each business is run, so make sure that they are documented
  • Keep on top of lodgements and debt
  • Don’t try to patch things up when you or your client receives an audit letter


It should be noted the proper management of audits can significantly reduce the long term financial impact on clients.

Garnishee Notices

Feedback received from business bankers of late is that they have seen an increase in the number of garnishee notices received by the banks from the ATO in respect to outstanding debts.

A garnishee notice requires the recipient, i.e. the bank, to pay funds from an organisations account, if available, to reduce the debt owing to the ATO.

This can create both cashflow and/or financial problems for an organisation. Firstly, the organisation can be left without funds in its bank account to pay commitments to ensure the ongoing operation of the business, such as payment of wages to employees and to key suppliers. Secondly, the receipt of a garnishee order by a bank generally constitutes a breach of the organisations lending covenants, which can have an adverse effect on continued funding of the organisation.

A copy of garnishee notices issued to the banks are forwarded by the ATO to the organisation at its registered office. Should such notices be received on behalf of clients, again it is important they are dealt with expediently.

Wind Up Notices

There have been an increasing number of wind up notices issued by the ATO as listed in the ABR Government Gazette which is published on a weekly basis.

Given that such notices are issued on the registered office of organisation, and noting that the registered office is generally the office of the external accountant, it is important that these notices are dealt with expediently.

In certain circumstances, your client may dispute the debt, so they will need to engage a lawyer to seek a stay of the wind up proceedings. Therefore, it is of upmost importance that your client is put on notice of such proceedings in a timely manner, so as not to prejudice their position. 

If the debt cannot be disputed and your client has a financial and / or cashflow problem, it is important that advice be sought in a timely manner to maximise the options available to deal with the situation.

If you have any concerns regarding any of the recent activity from the ATO as stated above, please contact your SV Partners advisor on 1800 246 801.

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