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Tax Audit Tips from Michael Cranston – Past Deputy Commissioner of ATO

Facing a tax audit can be daunting, especially if you’re unprepared. In Australia, the tax-lodgement system relies on self-lodgement. You lodge both individual and business tax returns, taking responsibility for the accuracy and completeness of the data. The Australian Taxation Office (ATO) accepts the figures initially but may initiate a tax review to examine specific sections if they have questions. If the review is satisfactory, the ATO gives an all-clear; otherwise, they initiate a tax audit.

The Voluntary Disclosure Option

During a tax audit, the ATO often offers a voluntary disclosure option. This allows taxpayers to voluntarily disclose areas of mistakes. If the ATO is satisfied with the findings, they won’t investigate further. However, if there’s a shortfall in tax due to the additional information, the ATO typically applies a penalty of 25% of the shortfall amount. As experienced tax agents and accountants in Ashfield, Sydney, and Adelaide, we can help you seek a reduction in the penalty and interest from the ATO.

Consequences of Unsatisfactory Audit Findings

If the initial tax audit findings are unsatisfactory, the ATO will initiate a full-scale audit. They will scrutinize the data in the current and prior years’ tax returns. If they find mistakes leading to higher tax payable, you will need to pay the shortfall tax and a penalty. The shortfall tax penalty includes:

  • 25% due to recklessness
  • 50% due to misleading and deceptive information
  • 75% or 95% due to interference with the tax audit

Common Mistakes in Tax Returns

Many people wonder what constitutes mistakes in a tax return. As professional accountants and tax agents in Ashfield, Sydney, and Adelaide, we advise our clients to look out for the following:

  • Undisclosed income
  • Claimed deductions you weren’t entitled to
  • Claimed credits you weren’t entitled to
  • False or misleading statements about your tax affairs

If any of these apply, consult your accountant or speak to us. Sometimes, it is better to voluntarily disclose the mistake to the ATO through an amendment before they notice it.

Expert Insights from Michael Cranston

Last week, we spoke with Mr. Michael Cranston, who worked at the ATO for over 40 years, most recently as Deputy Commissioner. In this video, he discusses the ATO’s access powers and offers tax audit tips. He also shares his recent audit experience regarding overseas income, specifically when individuals receive money from their parents overseas. The ATO sometimes audits these transactions, alleging the inflow of money is overseas income that should be taxed in Australia.

Watch the Interview Video

Please see the interview video for valuable tax audit tips and insights.

Mr. Michael Cranston explains the access power of the Australian Taxation Office regarding the content on the ATO website as ATO can access places in Australia without a search warrant. They usually need to give reasonable notice; however, in certain circumstances, they don’t have to do it.   

“When using our access powers, we are authorized to enter and remain on any land, premises, or place and have full and free access to books, documents, goods, or other property. We can make copies of documents for our records, but cannot seize or remove your documents without your consent. We can only exercise our rights of access for the purposes of the applicable laws we administer.

If we visit your premises, you must give us reasonable assistance and provide adequate facilities. Penalties and prosecution may apply if we are obstructed from gaining access or where reasonable facilities or assistance has not been provided.

We will generally give you prior notice before exercising access power. However, in exceptional circumstances, we may not give you notice beforehand – for example, if we believe that the documents we need may be destroyed.

Our access powers are limited by legal professional privilege, the accountants’ concession, and the corporate board advice concession. Our access powers are not restricted by claims of confidentiality or privilege against self-incrimination.

The decision to use our access powers is reviewable by the Federal Court under section 5 of the Administrative Decisions (Judicial Review) Act 1977. You have the right to a ‘statement of reasons’ in respect of our decision under section 13 of the Act.”

As you can see from the above content, the ATO has an enormous amount of power to search for your place. Also, ATO is the only organization besides the court to be able to internally issue garnish notices to the taxpayer for debt. In the next article, we will talk in detail about how ATO conducts the tax audit, and how we as one of the most professional and experienced accountants and tax agents in Ashfield Sydney able to help you overcome the tax audit. 

From ATO Website

As one of the most professional and experienced accountants and tax agents in Ashfield Sydney and Adelaide South Australia, we are here to help you following the given tax audit tips, If you have encountered a taxation issue, please let me know via our email