Small Business Tax Infrigments That Attract The ATO’s Attention
As we head into tax time, getting your tax return wrong can make you subject to some unwelcome scrutiny from the ATO. This can be stressful and potentially expensive in terms of extra tax payable, interest and penalties.
So, how do you avoid the ATO’s attention?
Declare all your income.
If you don’t declare all your sales, expect the ATO to take notice, particularly cash-only businesses. Their opinion is the only reason for a business to be run on a cash-only basis in this day and age, is to avoid tax.
Some of the methods the ATO uses are the small business benchmarks. They compare the financial results of businesses across a particular industry, to produce results which represent a typical business within that industry. Businesses will often find themselves being looked at more closely if they fall outside of the benchmark percentages.
Additionally, the ATO can now data-match against figures reported to them from multiple sources. Data from banks, share registries, employers, merchants, states and territories and government departments are just some of the sources available to the Tax Office.
The ATO will make compliance visits to businesses after receiving complaints from community whistleblowers. This can be from customers who saw their cash going into the back pocket of the owner or from disgruntled staff, who often complain about outstanding wages or superannuation contributions.
Claim deductions you are entitled to.
Your business will be entitled to a tax deduction if you spend money to produce ‘assessable income’. Inflating deductions or claiming expenses that don’t have anything to do with running your business, can attract the attention of the ATO.
To avoid any scrutiny from the ATO, keep records to substantiate your expenses are actually ‘out-of-pocket’, and have been incurred to run your business. There are legitimate deductions that almost every business can take advantage of.
Lifestyle not in line with income.
The ATO will be looking very closely at you, if you declare income under the tax-free threshold, but you are enjoying waterfront living and riding around in the latest high-end car. The ATO can assess the assets you own (cars, properties, boats etc) from third party data like records of property purchases and calculate the approximate amount of income you would need to support your lifestyle.
Get advice.
Relying on your own bookkeeping and accounting skills can be a costly mistake given the complexity of tax law, and the potential penalties that can arise. Enquire today about our bookkeeping and tax services, and free up your time to run your business.
