Mr. D runs a busy café. Although he can make the best coffee and prepare the most delicious meals, he is not very good with his paper work. He does not think bookkeeping is that important and would just write down on a piece of paper his sales, his purchases and expenses based on whatever invoices he could find and asked his accountant to do the tax reporting accordingly.
After years of hard work, Mr. D successfully bought his new beautiful dream home and leased out his old home to earn some rental income. But not long he got a surprised call from his accountant saying that that the ATO has contacted him asking him to provide detailed information regarding the past two years’ tax returns lodged because the ATO does not believe with the level of income he reported he could actually afford to buy a house with this price tag.!
Apart from the piece of paper given to him, the accountant could not produce any more information, so he asked Mr. D to quickly provide all the extra information including bank statements, credit card statements, purchase invoices, merchant statements, staff roster and wage records, super payment records and so on so forth. Most of all he is asked to provide a list of his living expenses!
Soon the ATO review escalated to be an audit. Not being able to find all the documents, he started to realise the seriousness of the audit and called us on recommendation of his friend.
We went through all the paper works he can provide and tried to reconstruct all the missing information. We advised him to contact the banks asking for all the missing bank statements and loan statements, we contacted his suppliers asking for all his purchase records, compared various bank transactions to work out the actual cash flows, compared to his living expenses and use the asset betterment method to work out the possible missing income. We contacted the ATO on his behalf and after many rounds of communications, eventually worked out a reasonable amount of tax and GST payable to the ATO, lowered his penalty and remitted significant part of the interest payments.
Mr. D learnt his lesson in a hard way. But ever since then, he understands the importance of good record keeping and proper tax reporting. Nowadays with the help of ML Tax Solution, he not only has a good set of financial statements and tax returns, but also has grown his business and built a healthy investment asset portfolio.
At ML Tax Solution, we believe good record keeping, proper tax advice and responsible tax reporting are the best defence for any ATO review or audit.
Contact us on firstname.lastname@example.org or 03 95338980 if you would like to get your books and records in order.