Navigating Tax Audit Insurance Claim Trends: A Comprehensive Overview

At a recent “Tax Audit Insurance Claim Trends” webinar hosted by our trusted audit insurer, Accountancy Insurance, we had the privilege to delve into the intricate world of tax audit trends and gain insights into the Australian Taxation Office’s (ATO) focal points for future audits and reviews. In this article, we have condensed the key takeaways and significant trends for your review.

Key takeaways

• An astounding 52% of audit activities are attributed to factors beyond an accountant’s scope, such as payroll discrepancies. Interestingly, a quarter of all claims stem from State-based Government entities, with the remainder primarily being ATO-related claims.
• In the foreseeable future, the ATO has set its sights on several critical areas for audits and reviews, including Capital Gains Tax (CGT), Super Guarantee, Self-Managed Superannuation Funds (SMSFs), and Payroll Tax. Notably, the peak of claim activity for the current year has been in the scope of payroll tax, a trend anticipated to continue.
• It’s also noteworthy that the Fair Work Commission has also emerged as a sizeable contributor to audit claims, indicating a diverse array of factors prompting audit activities.

Payroll tax under the spotlight

There has been a notable surge in audit activity concerning payroll tax, particularly within the medical sector. This increase can be attributed, in part, to recent court cases in the Eastern Australia that have highlighted the intricacies of payroll tax applicability, especially within medical clinics where practitioners’ are payroll taxable within a clinic.

Surge in state-based audits

There is a surge in state-based audits encompassing land tax, payroll tax, stamp duty, and Workcover. From a rate of 18.69% in 2022, these audits have escalated to a substantial 23.93% in 2023, underlining the evolving focus of state-based government’s involvement of auditing and their reviews.

Superannuation challenges and reviews

The domain of superannuation has encountered its share of challenges. Superannuation Excess Concessional Contributions (ECC) saw an increase in audit activity from 2.57% in 2022, to 5.55% in 2023. Notably, super fund reviews have experienced an extraordinary upsurge of 116% from 2022 to 2023, surpassing pre-COVID levels. The ATO’s ongoing “next 5,000 review” program targeting the Top 500 private group’s tax performance sees SMSFs with assets exceeding $50 million remaining a pivotal initiative conducted by the ATO. The ATO will continue a sustained effort towards those SMSF’s over the coming years.

Unravelling the super guarantee dilemma

Super Guarantee (SG) claims have emerged as a prominent concern, ranking fourth in terms of claim amounts. This underscores the heightened scrutiny this area is receiving from audit bodies and the excess time taken to provide resources to reply to audit queries.

The era of advanced data matching

With advanced data matching capabilities at their disposal, the ATO is progressively honing in on specific areas for scrutiny. Rental property investment loan balance checks are being done by the ATO on key dates of 30 June and 1 July and have come under the microscope. Moreover, the ATO is vigilant regarding drawdown balances and transactions associated with redraw loans. A key piece of advice arising from the webinar is to ensure that the loan balances on both June 30 and July 1 remain consistent for investment properties.

Navigating rental property expenses

Another investigative area stems from the ATO’s identification of inaccuracies in rental property expense claims. Astonishingly, the ATO discerned that a staggering 9 out of 10 rental property expenses are reported incorrectly. This discrepancy is frequently observed among individuals lodging their own income tax returns, often compounded by a lack of proper documentation for these expenses. It is a timely reminder that all expense claims must be supported with receipts and documentation.

Data matching enters a new frontier

Increasing their data matching capabilities, the ATO is now engaging with insurers, covering domains like tenancy insurance—to cross-reference against individual tax return assets and income records, ushering in a target area for the ATO.

In conclusion, the insights gleaned from the “Tax Audit Insurance Claim Trends” webinar highlight the dynamic and shifting landscape of tax audits and reviews. Understanding these trends can empower accountants, taxpayers, and businesses to proactively address potential audit triggers and maintain robust financial compliance practices. As the regulatory landscape continues to evolve, staying abreast of these trends is paramount to safeguarding financial interests.

How you can protect yourself and your business from the high cost of audits

Each year we offer an Audit Shield Insurance service and you can, and should, renew your policy. The service we offer covers the cost of any fees incurred in the event of an audit by the Australian Tax Office or any other Government agency. The cost is tax deductible as a cost of managing your income tax affairs. Please get in touch below to discuss any aspect of audit insurance.