ATO Unveils Unprecedented Employment Tax Oversight with Random Audits
In a groundbreaking move, the Australian Taxation Office (ATO) is intensifying its efforts to scrutinize employment tax compliance, employing a multifaceted approach that involves thorough reviews of businesses' obligations related to PAYG, FBT, and superannuation. Grant Thornton sheds light on this novel tactic, emphasizing its encompassing nature.
George Bendall, the Employment Tax Partner, divulges that the ATO is deploying the Random Enquiry Program (REP) for these audits, a departure from its previous usage limited to individual and business income tax returns. Despite having a one-year scope, the audits are designed to delve into all aspects of a business's employment tax responsibilities, marking a paradigm shift in the ATO's audit strategy.
Bendall underscores the uniqueness of this approach, characterizing it as a broad and extensive audit covering all facets of employment taxes. Unlike past audits triggered by data matching or complaints, these random and widespread audits represent a significant departure from conventional practices.
Initiated in 2016 to assess the individual tax gap, the REP has now evolved to measure the small business income tax gap. Bendall posits that recent high-profile breaches by major corporations, universities, and celebrity restaurants may have motivated the ATO to expand the REP's application to employment tax obligations.
Grant Thornton, following discussions with the ATO, confirms that businesses selected for audits are chosen randomly, irrespective of their size or turnover. To substantiate compliance during the review period, the ATO demands an array of documents, emphasizing standardized and detailed information requests.
With the audits still in progress, Bendall estimates a minimum duration of two months. Drawing from past experiences with similar audits, such as those related to superannuation, he suggests that identified issues within the one-year period may lead to an expanded and more comprehensive review.
Described as "all-encompassing," these audits place a considerable burden on resources, with the ATO delving into financial statements, payroll records, logbooks, and bank statements. Bendall advises businesses to refocus their attention on employment taxes, particularly stressing the significance of accurate record-keeping and adherence to Fringe Benefits Tax (FBT) regulations.
While total compliance with all employment tax obligations is considered uncommon, the consequences of non-compliance can be severe, with potential penalties reaching up to $782,500 plus interest for significant global entities. Bendall warns of the ATO's authority to impose director penalty notices, holding company directors personally liable for unpaid amounts of PAYG withholding and superannuation.
In response to these developments, businesses are urged to treat the audits seriously, consider proactive pre-audit assessments, and, if selected, make voluntary disclosures to mitigate the potential impact of penalties. The evolving landscape of ATO oversight demands a renewed focus on meticulous compliance with employment tax obligations.