Case Studies - ATO Audits

With the increase in ATO audit activity, we have put together a couple of case studies around recent audits we have helped our clients through. Have a read below.

Case Study 1 – Superannuation Guarantee Obligations Review

Client had cashflow issues when employing staff and had not paid superannuation on time. Their accountant (prior to Aegis) had not informed them that they were required to lodge Superannuation Guarantee Charge (SGC) forms to disclose late superannuation, even if it had already been paid. Client also didn’t realise they have missed paying some employees superannuation, due to poorly kept records and a change in accounting software across the period. They had also paid random amounts to employees’ funds which did not line up with the amounts accrued.

Not long after engaging Aegis as their tax agent, the ATO instigated a superannuation review. The Aegis team helped the client reconstruct the wages records across two systems, and via the superannuation clearing house used by the client, to work out which superannuation had been paid, and which had not. We also prepared the SGC forms, whilst utilising the late payment offset provision where possible.

Once the SCG forms had been accepted by the ATO, they applied various penalties to our client’s account. Our next step was to plead our client’s case for why they have not met their obligations on time. The client had various other (justified) complaints about incorrect advice received by the previous agent and queried the accuracy of the BASs and tax returns lodged by this agent. We were able to have the majority of these penalties remitted and assisted the client in entering a payment plan for the balance.

Our fee to undertake this work on behalf of and in collaboration with the client totalled more than $7,000. As the client had taken up our offer of audit shield insurance when they initially engaged us, due to (correctly) suspecting the work by the previous accountant was inaccurate, our fee was fully covered by the insurer.

Case Study 2 – Work Related Motor Vehicle Expenses and Rental Property Expenses Audit.

Client uses their personal vehicle for their 3^rd party employment and is paid a car allowance by their employer. Client kept a logbook for the required 12 week period and used that work related percentage for the motor vehicle expenses.

Client also has an AirBNB rental property in a popular holiday location. This property had a lot of repairs and improvements completed on it over the year.

The ATO officer argued that the client’s logbook was not indicative of normal usage and referred to the client’s property & personal social media accounts which showed the vehicle and/or the clients at the holiday location where the AirBNB is located, at various times through the year. They also argued that the property was used by our client more than the number of days we reported, which would affect the apportionment of expenses. The ATO officer also questioned some of the AirBNB expenses, such as esky and fish cleaning table, as well as promotional material that the client gives away to guests. They also queried whether particular items were more appropriate as improvements to be depreciated over a number of years rather than repairs for immediate write off.

Our client had meticulous records. They had diary entries and receipts along with explanations for every expense. They have active social media profiles for the AirBNB property. Our client was able to prove that many of the photos on social media were taken in bulk on a single visit and posted to the social media at various times during the year, to give the illusion that they were in the location through the year.

The final outcome for the Work Related Motor Vehicle Expenses was a reduced work related percentage for the motor vehicle claim, with the ability to record a new, and more comprehensive logbook for the 2024 financial year. With regards the rental property expenses, the main change was a reduced apportionment to account for a higher number of days of personal use of the property. The client’s tax refund was reduced by approximately $4,000 due to the ATO audit.

The Aegis team responded to the audit and where required, requested information from our client, and guided them with what type of information might assist the audit process. This audit was a long and drawn out process, with the ATO officer being extremely diligent with their investigation, and our client had meticulous records. Even so, our fee was more than $6,000. Fortunately, our client had taken up our offer of audit insurance and their claim was accepted, meaning the insurance paid Aegis, not our client. Therefore, even though the client’s refund was reduced $4,000, at least they didn’t also have to pay our $6,000 invoice, for a total of $10,000 less than they were expecting.