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Tax time focus areas for businesses

With the ATO’s compliance targeting of large businesses in the past few years reaping rewards, this tax time, its attention will be on small businesses. As a small business owner, what do you need to be aware of to stay out of the ATO spotlight?

A recent interview with Tax Commissioner, Chris Jordan, revealed details of what the ATO will be paying particular attention to this year. Perhaps not surprising, the ATO will be targeting businesses that deal in cash. As a part of its cash and hidden economy operation, the ATO has compiled “data-maps” of cash-only businesses and those that do not frequently or readily use electronic payment facilities.

Using the data-maps the ATO is homing in on particular suburbs which have a high incidence of cash-only businesses.  They will be looking for several things including: whether the business has undeclared income; whether the employees are allowed to work (visits in the past have been made in conjunction with the Fair Work Commission or the Department of Immigration); and whether the employees are receiving the correct amount of wages, conditions and superannuation.

Leading on from this the other areas the ATO are targeting will include unpaid superannuation guarantee contributions and cash payments of wages without the associated conditions and benefits. This will be further supported with the introduction of single-touch payroll (STP), allowing the ATO to receive information on unpaid superannuation contributions much earlier than before.

Even if you’re not running what the ATO deems to be a “cash business” there are other areas you will still need to be aware of this tax time. In particular the ATO will be looking at small businesses wrongly claiming private expenses, and unexplained wealth or lifestyle.

Under tax law, you can generally deduct a business expense if it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, provided the expense is not capital, private or domestic. Commissioner Jordan noted that small businesses intermingling their private expenses with their business expenses has been an issue for a long time. Therefore, if you’re running a small business you should make sure all your expense claims are in fact business related, any expenses that are both business and personal needs to be apportioned on a reasonable basis.

The unexplained wealth or lifestyle targeted by the ATO includes instances of business owning families that have low or average reported incomes, but have a lifestyle that far exceed those modest incomes. Commissioner Jordan considers that having kids in private schools and taking frequent business class flights on overseas trips would be considered unexplained wealth. He said the ATO will use all its resources including obtaining information from other government departments (ie Department of Immigration) and social media (ie Facebook posts).

With over 30 years experience working with SME’s Hanrick Curran are here to help business owners navigate the accounting and tax responsibilities that come with running a business. For assistance preparing for the financial year end or for support in moving away from cash and transition into electronic payments please contact your Hanrick Curran advisor. Alternatively, contact business advisory specialists, Tony Hunt, John Kotzur, Jamie Towers or Simone Gordon on 07 3218 3900.

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

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  Jamie Towers