Avoid a GST audit with these simple principles
The thought of a GST audit would frazzle most people. Unfortunately, it does happen and could happen to you. The Australian Tax Office (ATO) conducts GST audits to ensure businesses fulfil their legal obligations and operate appropriately within the system.
These audits may be conducted by phone and/ or visit from the ATO to check the integrity of information lodged.
Some of the key factors that may raise concerns are:
- Failure to lodge BAS forms for long periods of time
- Record keeping issues
- Incorrect reporting on BAS Lodgements
- Over-claiming GST input tax credits or under-reporting GST
- Large GST refunds
- Export of goods
- Property transactions
- Supplies of a going concern
- Businesses where GST management practices have failed to keep pace with their growth
- Aggressive Tax Planning arrangements that are designed to avoid or reduce GST payable, such as international arrangements or secondhand goods arrangements that circumvent the intended operation of the law.
- Businesses that report GST amounts that are markedly different to similar businesses in similar industries
How to avoid or reduce the risk of a tax audit?
First, make sure you have up to date and accurate record keeping when it comes to GST. With the appropriate accounting software solution, you are already on your way to doing this.
You must comply with the ATO’s GST requirements. With each BAS lodgements, you should maintain all the necessary documentation and reporting to support your GST claims. Ensure your accounting software is compliant to the ATO and is set up to account for GST accurately.
After entering all receipts, tax invoices and entries from your bank and credit card statements into your accounting software, these are the reports and documents you should file
- Detailed GST reports for the quarter which reflect the Invoices, Purchases, GST collected and paid as well as transactions that do not attract GST.
- Copies of all receipts and tax invoices, bank statements, credit card statements and cash register receipts.
- A balance sheet and profit and loss report for the period.
- A backup of your accounting data to that date or lock the period to avoid changes.
- Since payroll is often a part of the GST reporting, keep a copy of your payroll reports used to report PAYG to the ATO.
If you follow these valuable business practices and comply with the ATO GST regulations, you should have no reason to be nervous of audit reviews. Remember, you must keep your records for five years from the last assessment you lodged.
In my experience, the GST audits that our clients have undergone have been very simple. The ATO generally requires a list of all the transactions that make up the reported GST figures. Then, they will identify several transactions and ask for copies of the invoices to prove these transactions took place. This is when a good filing system is vital.
For businesses using MYOB Accountright, the specific reports that we use are:
- The GST summary and detail reports (Cash or Accrual depending on what GST basis you are reporting)
- The payroll activity summary
- The profit and loss
- The balance sheet
- The BASLink print out
With MYOB Accountright, it is very easy for your tax advisor or your BAS agent to log into your file and lodge the figures on your behalf, if you don’t lodge them yourself.
Make sure you meet all your tax and compliance obligations during the EOFY. Check out MYOB’s Tax Changes Information section, meant to help startups and small businesses (SMEs) stay on top of their game with tax changes and tips.
The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced tax agent as each small business’ circumstance will vary for end of financial year.