Tax practitioners should remind ATO audit officers of the cost of compliance when facing exhaustive requests for information, a former deputy commissioner has advised.
‘Keep reminding the ATO of the cost’: Former deputy commissioner flags audit defence
“My biggest criticism of the ATO in the audits — they have no understanding of the cost of compliance,” said Michael Cranston, a partner at Waterhouse Lawyers.
“The cost to some of these smaller businesses, even bigger businesses, the exhaustive information requests — they might send out a private questionnaire which goes over five years and it is about everything somebody has done in five years, including all the family members, and to get all of that information together is just unbelievably hard.
“And then they might ask a million questions about the business and the financial accounts and some of these things I can’t believe the amount of information that is required.”
The former ATO deputy commissioner, who was speaking at the Accounting Business Expo on Tuesday, said practitioners should lean heavily on the Taxpayers’ Charter, which requires the ATO to minimise cost and inconvenience when conducting an audit.
“That’s one conversation you need to keep raising with the Tax Office especially if they are going into exhaustive requests for information,” Mr Cranston said.
“Keep reminding the ATO of the cost to the taxpayer when dealing with information requests, ask them for the relevance of the questions, why do they need to go so far, this is costing my client a fortune.”
The advice comes as ATO reviews and audits have recommenced following a pause during the height of the pandemic, when the ATO redeployed its auditors to help with the rollout of COVID-19 stimulus measures.
Debt collection activities have also since resumed, with the ATO noting that it would adopt a “really soft” approach at the outset.
Mr Cranston said that while it was easy to adopt a negative view of the ATO when approached for an audit, he believes practitioners can increase the chance of a quick and successful outcome by starting with a trusting relationship.
“The problem in audits is getting the right balance with a fair administrator because the ATO has a right to audit, there has got to be checks on people in the tax system, but at the same time we got to balance this with the cost to the system,” Mr Cranston continued.
“I think you’re better off trying to start with a trusting and working relationship and having conversations, and if the audit team is quite aggressive and not aspiring to what the ATO is saying, try some escalation points or reason with them first.
“If all that fails and you are not getting to the escalation points, then you may have to bunker down because if they are treating you unfairly, you could wait to deal with somebody who may be more reasonable in the objection phase.
“You also want to work with your clients to identify the tax shortfall very early and have a really robust conversation about voluntary disclosures because it could be cheaper in the long run, might reduce penalties or no penalties, and [spend] less time in audit.”