Stress and anxiety

Dealing with an audit can be a highly stressful experience for individuals and businesses. According to a survey by the Institute of Public Accountants, 70% of small businesses reported feeling stressed by their dealings with the ATO. Additionally, a study by PwC found that 42% of Australian businesses experienced financial stress as a result of dealing with the ATO.

Time-consuming

The audit process can be highly time-consuming, with individuals and businesses required to provide a range of documents and information to the ATO. For example, a tax audit of a small business can take between 3-6 months to complete, with a significant amount of time spent gathering and submitting information. According to the ATO, the time it takes to complete an audit can vary depending on the complexity of the case, with some audits taking up to 12 months to complete.

Loss of productivity

Dealing with an audit can take time away from other important tasks, leading to a loss of productivity and potential financial loss. This is especially true for small businesses, which may not have the resources to dedicate to the audit process. According to research by Xero, small businesses in Australia spend an average of 12 hours per month dealing with tax compliance, with 27% of business owners reporting that tax compliance is their biggest administrative burden.

Costly

Audits can also be costly, with individuals and businesses potentially needing to pay for professional advice and assistance to navigate the process. For example, tax accountants and lawyers may need to be hired to provide guidance and representation during an audit. In addition, if the audit leads to penalties or fines, these can be financially devastating for individuals and businesses. According to the ATO, the average audit adjustment for small businesses is around $18,000. An ATO audit can be expensive, especially if the business or individual being audited needs to engage a tax professional to assist them. According to a survey by CPA Australia, 40% of small businesses reported that an ATO audit had a negative financial impact on their business.

Damaged reputation

Being audited can damage an individual or business's reputation, as it may be seen as a red flag for potential non-compliance or unethical behaviour. For example, a public audit of a high-profile individual or company can lead to negative media attention and a loss of trust from customers or investors. In addition, according to a survey by the Institute of Public Accountants, 63% of small businesses believe that the ATO treats them unfairly. An ATO audit can lead to negative publicity and damage to the reputation of the business or individual being audited. For example, in 2018, the ATO named and shamed over 1,000 businesses that had not paid their taxes.

Legal implications

In some cases, an audit may lead to legal proceedings, which can be costly and time-consuming. For example, the ATO may initiate legal action against an individual or business for non-compliance, such as in the case of the high-profile tax fraud case involving former Australian Taxation Office deputy commissioner Michael Cranston. According to the ATO, in the 2019-2020 financial year, they initiated 1,133 audits which resulted in criminal or civil litigation.

To reduce the risk of a negative tax audit outcome, the next-generation accounting platform Thriday can help. Thriday has in-built automation that can act as a safeguard against tax audits by meticulously tracking expenses and receipts. In the event of an audit, Thriday equips users with comprehensive and accurate reporting, streamlining the process and ensuring all records are available digitally.  

In conclusion, an ATO audit can have a range of negative impacts on individuals and businesses, including stress, financial costs, loss of productivity, damaged reputation, and legal implications. It's important for individuals and businesses to ensure they are complying with tax laws and regulations to minimise the risk of being audited by the ATO.