ATO audits

ATO audits usually result when the metrics of a company tax return fall outside of what the ATO judge to be normal for a particular business profile. That may be for a number of reasons, and the ATO has developed some good analysis tools that help them to identify such cases for potential review. They also conduct random audits, and audits based on information (such as whistle-blower declarations, or suspect behaviours of rogue tax agents).

Even if the R&DTI figures were not the reason why the audit was triggered, the ATO may ask for clarification of the R&DTI figures provided in the return.

An audit may be triggered at any time (up to 4 years after the tax return is submitted), however if a refund is due, then the ATO will contact you within 30 days if they intend to retain the refund whilst they conduct their investigation. Audits of returns where refunds have already been paid, can result in requests for repayment accompanied by interest and penalties.

If the ATO request further information, then you will typically be expected to reply within 28 days (unless extensions are requested and granted). Under the ATO guideline QC24620 you can object to the retention of a refund after 60 days of deliberation by the ATO (that’s 60 days total of their time spent, not including time taken by you to respond to their questions).

Else, an audit can take months or even years to resolve.

The ATO has flagged a number of areas of the R&DTI where they are most concerned about compliance. We have noted that during 2020, claims with significant Payments to Associates have commonly resulted in an audit.

You can take out insurance against the cost of responding to an audit. This insurance will pay for service providers and other costs incurred in preparing responses. It will not pay out for the refund of errors in the tax assessment. It is arranged via your tax agent. Note that most policies do not include insurance against responding to AusIndustry compliance reviews (unless they are at the request of the ATO as a result of an ATO audit).