Inspector-General of Taxation Karen Payne believes the secret and protracted nature of covert audits could potentially blindside tax professionals and their clients, leaving them wondering why the ATO might be adopting a particular stance towards them.
These covert audits differ from standard audits where the Tax Office typically details its audit scope, explains its risk hypothesis, and presents a position paper.
“What can happen is, you’re trying to engage with the Tax Office, and they’re not giving you information, or suddenly you get a notice of amended assessment, or suddenly your bank accounts get garnisheed, and you’re sitting there going, why is this happening to me?” said Ms Payne on the Chartered Accountants Australia and New Zealand Acuity podcast.
“There may be good reasons why the Tax Office doesn’t want to notify you because they’re trying to manage a flight risk, for example, or risk of what you might do with funds, etc.
“But there are some signs that maybe you’re caught up in something like this, because you will get voluminous information requests; so you’ll get a lot of requests to provide information and you might be thinking, why am I why am I being asked to give all this information?”
These covert audits are common, said Ms Payne, but could potentially become problematic for taxpayers and their advisers because their perspectives are not taken into account.
That’s where Ms Payne and her team can help, by identifying if there is a covert audit underway, and ensuring taxpayers’ considerations are properly heard.
“If there’s a covert audit taking place, the Tax Office has only got one side of the story, because they’re not talking to you,” said Ms Payne.
“That’s one reason why things might not go as smoothly as they should, because they’ve just got their perspective, and only their perspective when they’re investigating.
“We can come into that covert audit situation, and we can help people to understand what’s going on with them. Also, we can make sure that if the Tax Office is making decisions about you, that they’re making those decisions with appropriate reasons, that they’re taking in all the information that they should be into account, that they’re not leaving out information that they should.”
Why covert audits exist
According to Ms Payne, taxpayers might find themselves caught up in a covert audit because the particular industry they are in has been flagged by the ATO.
“Let’s say industry X is something that is of concern to the Tax Office,” said Ms Payne.
“They think there’s activity taking place within industry X, then they can use the data that they have internally to get profile on taxpayers within the system that operates in industry X and then there might be audit activity commenced and undertaken in relation to those participants within that industry.
“And maybe you personally are completely innocent – if I can put it that way – innocent and not caught up in whatever else is of concern as part of the covert audit. But you as a taxpayer are just getting kind of dragged into murky waters.
“So, depending on the views of the auditor, and depending on how you’ve been caught up in this covert audit, you could be what I would describe as a victim and somebody who’s not fully aware or fully understanding why these things are happening to you.”
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Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.