Get client documentation right and avoid tax disputes

It is imperative that as professional advisers we seek to verify what we know and what we are told by clients.

Don’t take asset ownership at face value - reviewing documentation is integral to best practice in tax risk management and it sets the foundation for all that follows.

Practitioners have a battle on their hands. In the short term, there’s the constant need to drive down costs while providing current clients with exemplary service. In the long term, we need to bring in new business and develop and support our staff to order to attract these new clients.

 As these day-to-day tussles take place, the basics often get lost in the system.

By the basics I mean client documentation. It’s good risk management to be up-front with your clients.  So many cases before the Administrative Appeals Tribunal and Australian courts essentially revolve around matters of documentation and evidence rather than technical points of law. It is critical to remember that in the event of any dispute, the onus is always on the taxpayer. 

Essentially the first step in any dispute is to show proof of asset ownership and evidence of its existence. 

No surprises: Why assets need to be verified

While clients may tell us things in good faith, we should not rely on their interpretation of what they may or have not have seen, and what they may or may not understand.

It is imperative that as professional advisers we seek to verify what we know and what we are told by clients. Our professional roots are embedded in the ethos “no surprises”.

Assets from property to vehicles, shares and other interests must be verified. Equally important is verifying the name(s) on any loan attached to these assets. The simple question of asking for documentation yields results that, in the end, benefits all. 

Aside from viewing documentation directly, other sources of information include the Australian Taxation Office (ATO) portal, ASIC and the Personal Property Securities Register. Where necessary, banks can be directly approached, as can your client’s previous accountant.

Over the years, we have uncovered many issues with clients – mainly new clients – where things aren't as they seem. I admit the initial discussion can be awkward, but by the time that conversation is complete the relationship is stronger and all parties feel confident that what is in place is real and verified.

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Clients to avoid

Clients who withhold information or are otherwise unable to produce documentation should be avoided. Be very wary of cases where you are merely given figures; loans, for example, where you are not provided with documents such as the loan statement, which not only validates ownership but interest, repayments, other charges and outgoings. 

The execution and validity of these documents is in itself a critical area; however, the sighting and existence and verification of documentation are fundamental first steps.

The problems that can arise aren't limited to tax audits. Other areas in which lack of documentation arise include divorce, death (wills and estates), superannuation, bank and lending queries, state revenue authority reviews and disputes between partners.

Doing the basics and having those difficult upfront conversations with clients is often in our long-term interests. Playing the short game and taking things on face value will sooner or later come back to haunt you. 

Reviewing your documentation should not be seen as an unrecoverable cost but rather as an important step towards risk management.  It should be seen not only as insurance protection but as a value-added assurance service to clients. 

Along the way, your clients will appreciate you, your staff will learn something, you will feel more valued and as a community we will be better off.

Gavin Swan FCPA is director of Absolute Accounting Services

Read next: Client engagement documentation – what accountants need to know

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October 2021
October 2021

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