What happens if you get audited?

16/12/2014

No one who's ever been audited looks back on it fondly. Unfortunately, it's one of those experiences that many Australians have to go through at some point in their lives. It's useful to have a general idea of what the process entails and what your responsibilities and obligations are when it's being carried out.

What is auditing?

An audit is essentially a review of your finances and affairs in the event that the government has reason to believe you're not complying with your taxation obligations. This may not be malicious on your part - a tax oversight can be a simple case of human error. It's important that you are honest and provide whatever documents you need - as well as review your finances too.

Typically, the Australian Taxation Office (ATO) will first carry out a 'review', which is legally considered an audit, but is less severe. This assesses whether or not there's a risk you're not complying, collects information on particular industries and checks for any errors you might have made. If risk of non-compliance is found, that's when the real audit begins, which may end with you paying the ATO money, and even receiving a penalty.

How does the process go?

As the ATO outlines, you will typically receive prior warning in the form of a letter, which will contain all the essential information, such as the name of the tax officer who will be auditing you. You will have an initial interview with the tax officer, and possibly several more after that. You're entitled to an interpreter the whole way through, as well as an advisor who represents you, except in some circumstances.

You can be legally compelled to give information, evidence, as well as any necessary records and documents, and only in the most urgent situations will you be given no notice of a tax officer coming for documents.

When it's all said and done, you'll find out whether or not you've paid too much or - in some cases - not received enough. You may also be charged a penalty and, in the worst case scenario, be prosecuted.

For this reason, it's essential to have the personal protection services of an accountant to ensure the situation doesn't get to this point. You may even be able to avoid the process entirely.