Date posted: 19/11/2020 5 min read

Have you been caught by a secret audit?

If you or your clients are targeted in an ATO covert audit, who can you call? Meet Australia’s tax ombudsman.

In Brief

  • Covert audits by the ATO may occur because the tax office is targeting a particular industry sector.
  • As the audit is secret, taxpayers and tax agents may be blindsided when they receive an amended tax notice or bank accounts are garnished.
  • You can alert the Inspector-General and Taxation Ombudsman to investigate.

By Hannah Tattersall

As many accountants know, when the tax office does an audit, it usually notifies you and provides an agenda for what needs to be discussed. But that’s not always the case.

Tax officials can also conduct a covert audit. You have no idea that it’s happening. But then you get a notice of amended assessment or, worse, bank accounts are garnisheed.

Covert audits are common, says Karen Payne FCA, Australia’s Inspector-General of Taxation and Taxation Ombudsman, and can occur when the Australian Taxation Office (ATO) is looking into a particular industry sector.

Clues that you’re in a covert audit

“There are some signs that you’re caught up in something like this, because you will get voluminous information requests. And you might be thinking, ‘Why am I being asked to give all this information?’” Payne says.

Although there can be valid reasons for the ATO to keep things secret, such as managing a flight risk or not wanting funds to suddenly disappear, the consequences of a covert audit can “completely blindside” taxpayers and their tax agents.

“You’re sitting there going, why is this happening to me? Maybe you personally are completely innocent… but you as a taxpayer are just getting kind of dragged into murky waters,” says Payne.

Karen Payne FCAPicture: Karen Payne FCA. Image credit: Nic Walker.

“You as a taxpayer are just getting kind of dragged into murky waters.”
Karen Payne FCA

And that’s when her organisation can help.

How the tax inspector helps

The Inspector-General of Taxation and Taxation Ombudsman (IGTO) is an independent statutory agency that interacts with the ATO on behalf of members of the community. Each year, IGTO deals with about 3000 investigations, and Payne has been its head since May 2019.

“We can come into that covert audit situation, and we can help people to understand what’s going on with them,” Payne explains.

“This is where we can absolutely add a lot of value and alleviate concerns for practitioners and taxpayers.”

“This is where we can absolutely add a lot of value and alleviate concerns for practitioners and taxpayers.”
Karen Payne FCA

Speaking to host Aly Garret on the Acuity Podcast, Payne says if a covert audit is taking place, the tax office has only got one side of the story, because they’re not talking to you. 

“That’s one reason why things might not go as smoothly as they should, because they’ve just got their perspective, and only their perspective when they’re investigating.

“We can make sure that if the tax office is making decisions about you, that they’re making those decisions with appropriate reasons; that they’re taking in all the information that they should be into account, that they’re not leaving out information that they should.”

Payne, who spent 30 years as a tax adviser and was a MinterEllison partner before her appointment, says “Solving people’s tax problems is what gets me out of bed.”

So if you’re flummoxed by an ATO decision, get in touch.

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