Audit activity by the Australian Taxation Office (ATO) and other government revenue authorities are frequently triggered by targeted crackdowns, driven using sophisticated data matching and advanced artificial intelligence tools. These technologies allow the ATO and other government revenue authorities to identify discrepancies and areas of interest with remarkable precision. As technologies continue to evolve, the likelihood of being audited remains a reality for businesses, self managed superannuation funds, and individuals alike.
This article investigates the three most common Audit Shield claims activity categories, compiled by the Accountancy Insurance claims team from 1 July 2024 to 31 December 2024. These were:
1. Payroll Tax (All States) – 15.28%
2. Income Tax (Full/General/Combined) – 12.04%
3. BAS (Pre & Post Assessment) – 11.08%
The below pie chart shows the distribution of Audit Shield claims activity in Australia*.
1. Payroll Tax Investigations (All States):
The most common audit activity area from 1 July 2024 to 31 December 2024 was Payroll Tax Investigations (All States), accounting for 15.28% of the total claims. This is consistent with what was recorded in the 2023/24 financial year, where Payroll Tax Investigations (All States) frequency was 14.64%.
When analysing the total activity within Payroll Tax Investigations for each state, the breakdown of audit activity was:
- VIC: 42.25%
- WA: 22.54%
- NSW: 19.72%
- QLD: 9.15%
- ACT: 4.23%
- SA: 2.11%
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, cross border state revenue authorities, etc.) is also a key contributing factor in identifying employers to target for Payroll Tax Investigation activity.
Claim proportion (frequency) 1 July 2024 to 31 December 2024: Payroll Tax Investigations (All States) accounted for 15.28% of all Accountancy Insurance claims.
2. Income Tax (Full/General/Combined) Audits and Reviews:
Income Tax (Full/General/Combined) audits and reviews compromised 12.04% of the total claims for the period 1 July 2024 to 31 December 2024. This category includes ATO audits that combine numerous audit categories in one audit matter such as Income Tax, GST, CGT and Employer Obligations.
This is an increase from the 2023/24 financial year’s frequency of 9.25%.
Claim proportion (frequency) 1 July 2024 to 31 December 2024: Income Tax (Full/General/Combined) audits and reviews accounted for 12.04% of all Accountancy Insurance claims.
3. BAS (Pre & Post Assessment) Audits and Reviews:
BAS (Pre & Post Assessment) audits and reviews, accounted for 11.08% of the audit activity from 1 July 2024 to 31 December 2024. This marks an increase from the 2023/24 financial year’s frequency of 9.14%.
The ATO continues to prioritise compliance with GST obligations, focusing on Business Activity Statements (BAS). The increase in audits in this area may be attributed to enhanced data matching capabilities and a sharper focus on ensuring businesses accurately report GST.
Why?
- Businesses may not be accurately reporting GST on their BAS.
- Enhanced data matching allows the ATO to identify discrepancies between BAS submissions and third-party data, such as property sales and purchases, bank transactions and supplier reporting.
Claim proportion (frequency) 1 July 2024 to 31 December 2024: BAS (Pre & Post Assessment) Audits and Reviews accounted for 11.08% of all Accountancy Insurance claims.
Audit activity outside of the accountant’s control:
Certain audit activities often fall outside of the control of the accountant, particularly when the client prepares and lodges their own returns. These include audits and reviews by the ATO and other government revenue authorities for:
- Payroll Tax – 15.28%
- BAS (Pre & Post Assessment) – 11.08%
- ATO (Individual Excess Super Contributions) – 8.71%
- Land Tax – 7.63%
- Employer Obligation (PAYG/SG/FBT) – 5.38%
- WorkCover – 1.83%
- Stamp Duty – 0.97%
These accounted for 50.88% of all Accountancy Insurance claims for 1 July 2024 to 31 December 2024.
About Accountancy Insurance:
For over 2 decades, Accountancy Insurance has been the provider of choice for thousands of accounting firms around Australia, New Zealand and Canada. We work solely with accounting professionals, so we are across industry standards and best practices. We understand your needs and offer insurance products that help accounting professionals stay on top of their business.
Our suite of offerings include:
Audit Shield
A comprehensive tax audit insurance which covers the professional fees incurred as a result of official audit activity instigated by the ATO and other government revenue authorities.
PI Shield
Our Professional Indemnity is tailored specifically to the needs of Australian accounting firms.
Cyber Shield
Cyber Shield is designed specifically for accounting firms to provide prompt assistance with comprehensive coverage.
To find out more, contact the team.