Tax Problem Can Be Your Nightmare Depending On How You React at First.

If you received a letter from the ATO with “Please explain” type or informing they are undertaking an “Audit” for you or your business, what you need to do first is “being calm”. A panic mode does not help at all. Then do follow steps below in a timely manner.

1. With your tax agent’s help,  gather all the information and source documents as much as you can for the relevant period. This includes bank statements, tax invoices, receipts and other financial documents. In many cases, it is not a good idea to ask your tax agent to handle the tax audit as they could be the reason why you are getting the audit.
2. Find a good tax adviser or tax specialist lawyer and discuss the situation. Please do not think the matter can easily be resolved with cheap costs if you know the matter. You are the best person knowing why the ATO is investigating about your tax. Tell your adviser everything they ask for the matter. I personally found in many cases, people tend to hide even to their advisers and make things worse. Be honest to them. Good professionals will protect you.
3. It is a good idea to write a long statement to your adviser or the tax lawyer you engaged with chronological order. It makes the adviser understands the matter much quicker.
4. If you don’t have accounting book (such as MYOB), then you need to think about to build again based on real source documents you have. Bank statements will contribute may meaningful information for this job. Consult with your tax accountant or lawyer for the job. They will help you.
5. If you think the ATO targets tax on non-income nature such as money you borrowed or given by your parents, then you need to have valid evidences or your parents’ bank statements proving the money came from them.
6. Tax lawyers can play important role in cases of grey areas of tax law. They are good at to build so called “reasonably arguable position” against the tax office’s decision by referring tax cases or interpretations of law.
7. If your lawyer or accountant (ideally working as a team for you) found that you need to pay additional tax, then you need to think about a good reason for not paying heavy penalties and ATO interests by building a reasonably arguable position for you. Sometimes, penalties plus interest is bigger than the base tax amount you need to pay. If you have a legitimate excuse (usually personal circumstances beyond your control), then the ATO may waive the penalties and even interests by way of the Commissioner’s exercise of his discretional power. Again, the submission letter from your tax adviser plays important role. They are good at finding arguable position for you.

Finally, be very careful with so called ‘tax specialists’ heavily advertising online. Some of them are really good at stripping your money by taking advantages of your situation. It would be a good idea having a second opinion if things are not clear from the first consultation you had. Tax cases can be quite costly not only because of the final tax bill but because of professional fees as well. If you are not sure whether you have chosen a right professional, then always Google to see if there are any good feedbacks of their services.