Tax Audit by IRAS, though less serious than Tax Investigation, is something you would like to avoid whenever possible.
When the Internal Revenue Authority of Singapore (IRAS) reviews and examines the tax returns submitted by you to find out whether the deductions and income you reported are correct and accurate, it is performing a tax audit. There are several forms of tax audit, but the most widely practiced ones are desk and field audit. The difference between the two is detailed below.
Difference between Desk Audit and Field Audit
Desk audit is a type of tax audit which is usually done inside the office of the IRAS. Usually, the tax authority sends you a letter by mail requesting for more information about your tax returns. This type of tax audit is less time sensitive and allows you to explain and clarify your position via written letter or email. There are usually a number of follow up letters from IRAS after the first reply before the issues are clarified and the case is settled. The closure for under-reporting of income or over-deducting of expenses should result in additional tax and penalty.
A field audit is a more intimidating procedure than desk audit and it is the tax audit that most people dread. However, if there are no error in your tax return, you have all the supporting documents and are well-prepared for the tax audit questions, you need not worry about it. Precisely, field audit is a type of tax audit undertaken by the IRAS at your premises (that is taxpayer's office or residential) or if you hired someone to prepare your taxes for you, it is also possible that the tax audit may take place there. IRAS will typically call or write to you one week before the field audit to schedule for an appointment to visit and review your source documents. Unlike tax investigation where the IRAS investigators visit you without prior notice, a tax audit or field audit does not have such surprises and you still have some time to prepare.
In a field audit, the IRAS representatives might also wish to see other things instead of limiting themselves to the material provided. However, it is essential to tax precautions well before your scheduled appointment with the IRAS for the field audit.
Guidelines to Prepare for Tax Audit - Desk and Field Audit
To prepare for your field audit, it is good to take care of the following guidelines:
Arrange Necessary Documentation
To back the numbers in your tax filing, make sure you have gathered all the necessary documents. Plenty of written documents can play a vital role in providing the much-needed evidence to justify why you filed the way you did. The necessary documentation include:
- Tax returns and tax computation from the prior years and the present one;
- Financial statements for the year you are being audited for;
- Bank Statements; and
- Supporting Schedules like Capital Allowances and Adjustment Schedules.
Ascertain the availability of these documents as IRAS will expect you to have them with you before they ask for them.
Get a Tax Consultant
When tax audit is conducted by the IRAS, it is best to consult a tax professional specializing in Tax Audit and Tax Investigation. If you filed your tax yourself and you still do not intend to hire a tax consultant, you should rethink your option. If you are unfamiliar with current tax laws and have no experience dealing with an IRAS tax audit, it is ideal to take the services of a qualified professional.
The tax consultant can advise you or your rights and how to reply to IRAS tax audit questions appropriately.
Request for an Extension of Audit Date
Instead of rushing through the tax audit, it is advisable to request for an extension to reply to the questions or re-schedule the field audit to a later date with valid reasons. Before the IRAS questioning overwhelm you with your incomplete preparedness, an extension of due date to reply or for their visit may be a good option. It is always better to have as much time as possible to prepare yourself for the tax audit.
Prepare you for Field Audit and Desk Audit.
Advise you appropriately and minimizing the risk of not complying with tax rules.