The Accountancy Insurance claims department continues to be busy processing claims from client accounting firms across Australia. The six most common audit activity areas that have been noted were:
> Employer Obligations (PAYG/SG/FBT)
> Income Tax (Full/General/Combined)
> ATO (High Wealth)
> Payroll Tax (All States)
> BAS (Pre & Post Assessment)
> Income Tax (Rental Property)
The below pie chart shows the distribution of Audit Shield claims activity in Australia*.
* Correct as at July 2022.
When an audit hits, this is rarely a reflection of the work put into preparing the return and is more often due to a specific crackdown by the Australian Taxation Office (ATO) or other government revenue authorities.
These are the highlights from the six most frequent claim types amongst accounting firms offering Audit Shield in Australia between 1 July 2021 – 30 June 2022:
1. Employer Obligations Audits and Reviews (PAYG/SG/FBT):
Jumping back into the number one position of the most frequently submitted audit type in the 2021-22 financial year was Employer Obligations audits and reviews. Except for the 2020-21 financial year, this category was consistently in the number one position for audit activity with the claims department in recent years. This category regaining its highest-ranking position again demonstrates just how serious the ATO and other government revenue authorities are about business compliance, and how the ATO is returning to pre-Covid activity levels.
Accounting professionals are often caught off guard when it comes to these audits and reviews as they are not always involved with their client’s payroll preparation.
Throughout the 2021-22 financial year, many Australian businesses of all sizes struggled with maintaining a steady cashflow. As a result, some will not have kept up to date with their superannuation guarantee (SG) obligations. With Single Touch Payroll (STP), the ATO can easily identify and flag under payments of SG and we continue to see STP reporting as a big driver of ATO SG audit activity. By their own admission the ATO has implemented a risk-based compliance strategy and will continue to focus on businesses that fail to comply.
Claim proportion (frequency) 1 July 2021 – 30 June 2022: Employer Obligations Audits and Reviews (PAYG/SG/FBT) accounted for 13.47% of all Accountancy Insurance claims.
2. Income Tax (Full/General/Combined) Audits and Reviews:
Income Tax audits and reviews have jumped into the number two position in the 2021-22 financial year, following them being in number three in the 2020-21 financial year. This category covers a vast array of different types of ATO audit activity that can be linked back to the lodged income tax returns of taxpayers.
Following the sheer number of Australians working from home, even beyond the lifting of the Covid-19 restrictions, this has seen many individuals not properly claiming deductions in their lodged income tax return. For example, the ATO have been very clear that taxpayers should not make the mistake of ‘double dipping’ on their income tax return when it comes to claiming different types of work related expenses.
Claim proportion (frequency) 1 July 2021 – 30 June 2022: Income Tax (Full/General/Combined) Audits and Reviews accounted for 13.03% of all Accountancy Insurance claims.
3. ATO (High Wealth) Audits and Reviews:
The ATO (High Wealth) audits and reviews category saw a more than 7 percent increase in the 2021-22 financial year when compared to the 2020-21 financial year. This was entirely boosted by The Next 5,000 Streamlined Assurance Review program that commenced in October 2020 and is still ongoing as the ATO works its way through 5,000 audits of High Wealth taxpayer groups.
Although the ATO has access to a lot of resources, this program of reviewing 5,000 High Wealth individuals takes time. As the ATO continues to allocate their auditors to focus on this program we expect to see the number of Audit Shield claims continue to remain steady throughout 2022 and into 2023.
Claim proportion (frequency) 1 July 2021 – 30 June 2022: ATO (High Wealth) Audits and Reviews accounted for 10.94% of all Accountancy Insurance claims.
4. Payroll Tax Investigations (All States):
Payroll Tax Investigations (All States) continues to be a major focus area by all State Revenue Offices around the country.
Issues identified in Payroll Tax Investigations include:
- Grouping of related employer entities
- Contractors
- Employees based in other states (requiring registration in other states)
- Employers not being registered when data (e.g., STP) shows they are over the Payroll Tax registration threshold
- Data sharing with other government authorities (ATO, WorkSafe, icare, etc.) is also a key contributing factor in identifying employers to target for Payroll Tax Investigation activity.
Claim proportion (frequency) 1 July 2021 – 30 June 2022: Payroll Tax Investigations (All States) accounted for 10.32% of all Accountancy Insurance claims.
5. BAS Audits and Reviews (Pre & Post Assessment):
The Accountancy Insurance claims department noted a decrease of around 8% in BAS audits and reviews (Pre & Post Assessment) over the 2021-22 financial year when compared to the 2020-21 financial year. This has dropped BAS audits and reviews into the number five position of all audit categories, where it was previously in the number two position.
The drop brings the frequency more in line with what the claims department usually saw prior to the commencement of cash flow boost payment activity statement audits and reviews in the 2020-21 financial year.
Claim proportion (frequency) 1 July 2021 – 30 June 2022: BAS Audits and Reviews (Pre & Post Assessment) accounted for 8.88% of all Accountancy Insurance claims.
6. Income Tax (Rental Property):
Another area where the claims department has noted an increase in the number of claims over the 2021-22 financial year when compared to the 2020-21 financial year is in Income Tax (Rental Property) audits and reviews.
In this area, the ATO continues to review claim expenses related to capital works, depreciable assets, repairs, maintenance, and other rental property related expense claims. To support their efforts to catch out taxpayers trying to avoid paying their fair share of tax, the ATO has a lot of data matching sources from State Revenue Offices, rental platforms like Airbnb, Stayz, etc, as well as other government departments such as the Residential Tenancies Bond Authority in Victoria. With these data matching capabilities continuing to become more sophisticated, it is anticipated that reviews in this area will remain prevalent.
Claim proportion (frequency) 1 July 2021 – 30 June 2022: Income Tax (Rental Property) accounted for 7.38% of all Accountancy Insurance claims.
Audit activity outside of the accountant’s control:
There are many ATO, State and Federal government revenue authority audits and reviews (including three of the six highest claim types noted) where quite often the accountant only becomes involved after the government revenue authority initiated audit activity has started.
To put that into some perspective, nearly 50% of the audit activity our claims department recorded in the 2021-22 financial year were for claim types where the taxpayer (your client) and/or a bookkeeper may have prepared the lodged returns or managed the employer obligations compliance that were under audit.
Here is a breakdown of those figures:
Employer Obligation Audits and Reviews – 13.47%
BAS Audits and Reviews – 8.88%
Payroll Tax Investigations – 10.32%
WorkCover – 3.71%
ATO Excess Super Contributions – 5.57%
Land Tax – 3.38%
Covid-19 ATO JobKeeper Payment Audits – 2.31%
Stamp Duty – 1.28%
Total: 48.92%
About Accountancy Insurance:
The team at Accountancy Insurance have been perfecting tax audit insurance for almost 20 years. In that time, we have learned a thing or two about what accounting professionals are looking for to protect their firm and save their clients’ money.
One thing is clear, merely directing your clients to a broker’s website is not sophisticated, clever, or innovative.
Besides offering broad policy coverage, our more than 3,700 partnering accounting firms also experience the latest technological smarts and secure processes in the delivery and maintenance of their Audit Shield program.
We continue to develop and evolve our practice management integrations that will make our renewal processes even more efficient while never standing still in seeking out the best solutions available for business intelligence, security, compliance, tools, and more.
Being serious about technology is one thing but we also know the importance of genuine, hands-on assistance and probably the most important thing for us, is our focus on hands-on delivery. We still front our service offering with the simplicity of people who make it happen for you. All while you stay in control.
From initial sign-up, to your renewals, to claim finalisation, we keep you covered – year after year.
That’s just part of the Audit Shield experience.
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