Reasons A Return Might Attract Tax Audit


There are various reasons for a tax return being picked up by the ATO for audit and scrutiny. Most of the times they are unintentional omission and commission mistakes like typing errors in names and account numbers and a misplaced figure, which can be easily rectified and do not lead to a full enquiry. It is the more serious offences like omitted income and false deductions that may draw the ire of the taxmen. The ATO cross checks the information provided in the returns with a lot of other sources like banks and financial institutions before calling for an enquiry.

Having an annual cover for protection for audit insurance helps the accountants and their clients to face the expenses incurred during the tax audit. Here are some of the reasons that might result in a tax audit.

  • Audit rate is high for individuals in the high-income range. It is better to opt for a good audit insurance cover if you are high net worth individual.
  • The ATO keeps a tab on all the forms and bank account statements. If the income mentioned in the return does not match with the other information, it may result in a full tax scrutiny and audit.
  • Making huge charitable contributions always draws the attention of tax men. Be ready with all the documents and proofs when you claim deductions for charitable contributions. Get an audit insurance cover when you claim huge deductions in your tax returns as it is sure to raise a red flag with the ATO.
  • Taking huge deductions for the applicable income bracket always results in a scrutiny. Keep all the documents related to the deduction claimed handy to face the audit enquiry from ATO.
  • The firms with a large number of cash transactions also attract a tax audit from ATO. The tax department keeps a track of the average cash transactions for each industry, if your company exceeds the average number of cash transactions, you may be called for an audit and verification.
  • Sometimes ATO selects returns for audit on a random basis. You may be called for an audit even if your accounts are up-to-date and accurate. Having the cover of audit insurance helps to cope with the expenses incurred during a tax investigation.

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