Audit-ready before the letter arrives

What was broken

A professional-services firm was selected for scrutiny assessment, with the department questioning expense claims, related-party transactions, and the basis of certain deductions. The promoters were concerned about a large addition to income and the penalties that could follow an adverse order.

What we did

CapEasy assembled the assessment file — reconciling the return with the books, documenting the rationale for each questioned item, and preparing detailed written submissions with supporting evidence. We represented the firm through the assessment proceedings and responded to each query raised by the assessing officer.

Where it landed

The assessment concluded with the proposed additions substantially reduced and the firm’s positions accepted on the strength of the documentation. The engagement also left the client with better-organised records for future filings.

What an ATO review or audit actually asks for

The engagement above turned on one thing: every figure on the return could be traced back to a document that explained it. That is exactly what the ATO asks for when a business is contacted for a review or audit — not a defence of the numbers in the abstract, but the underlying records that support them. The ATO's own definition of a business record is deliberately broad: any document that records and explains a transaction or act relevant to the business. In practice that means invoices, receipts, contracts, bank and loan statements, BAS working papers, GST tax invoices, and the records behind any asset purchase or disposal — the same categories a request for information during a review will list by name.

A review is typically the ATO asking questions about a specific position on a return or activity statement; an audit is the more formal examination of a broader set of periods or issues. Either way, the request lands as a written ask for specific documents within a set window, and the business's job is to produce them — legible, in English, and tied to the transactions they explain. A record that exists somewhere but cannot be produced on request functions, for review purposes, the same as no record at all.

The substantiation file is built before the letter, not after it

The engagement's method was to reconcile the return to the books and document the rationale for each questioned item — built as a defensible file, not a scramble. The Australian equivalent is a business that can, on request, hand over a GST and income tax position that already reconciles to the ledger: BAS labels tied to GST control accounts, expense claims tied to invoices and their business purpose, and related-party arrangements documented with the agreement or resolution behind them rather than explained after the fact.

Related-party transactions and larger or unusual deductions are consistently where reviews spend the most time, because they are the items least likely to be self-explanatory from a bank statement alone. A transaction with a director, a related entity, or an unusual expense category is exactly the kind of line a reviewing officer asks about first — and exactly the kind of line that needs a contemporaneous note, not a reconstructed explanation, sitting behind it.

The record clock that decides what you can still produce

None of this matters if the records are not still on hand when the request arrives. Australian tax law requires a business to keep records explaining every transaction for five years, counted from the later of when the record was prepared or obtained, or when the transaction it relates to was completed — and that clock effectively extends for as long as the assessment it supports remains open to amendment. Records tied to a depreciating asset or a capital gains event run longer still: for as long as the asset is held, plus a further five years after disposal. Electronic records are fully acceptable, provided a scanned or digital copy is a true and clear reproduction of the original, in English, and can be produced within a reasonable time.

CapEasy's bookkeeping keeps GST, expense and asset records reconciled and retrievable on that timeline as a standing discipline, not a project triggered by a letter. When a review does land, the file goes to your registered BAS or tax agent, who reviews the position, prepares the response, and lodges anything that needs lodging with the ATO — the reconciliation and the document trail behind it are prepared; the agent is the one who represents the position to the ATO.