The Australian Tax Office plans to visit 10,000 small businesses in the 2019 financial year.

The Australian Tax Office plans to visit 10,000 small businesses in the 2019 financial year.

In a compliance push designed to reduce the SME tax gap “mobile strike teams” are being deployed to weed out tax dodgers.

The ‘mobile strike team’ visits provide real visibility of the ATO within the community. The ATO believe it shows their commitment to protecting honest businesses.
Deputy commissioner for small business Deborah Jenkins said the effort would “protect honest businesses” from being undermined by “competitors who get an unfair advantage when they don’t report all of their income”. It also sends a strong message to those who are deliberately doing the wrong thing that there is a high risk of being detected.

“This financial year, we are planning to visit 10,000 small businesses in 30 locations (10 metro, 10 regional and 10 remote). Already this year we have contacted over 3,000 businesses in 6 locations from Cairns to Canberra (also Darlinghurst, Surry Hills, Bunbury, Busselton)”.

“This is supported by mobile business visits to assist businesses with their obligations and identify businesses who may not be complying”. Of all the small businesses the ATO deals with (approx. 4 million), almost 30% don’t pay their tax on time.

Small business represented two-thirds of the outstanding debt owed to the ATO in 2017-18, totalling over $12 billion, and is now very much in the sights of the ATO.

The tax office is also paying particular attention to the claiming of private expenses for business purposes, the attribution of personal and business use, omitted income and a lack of understanding over how tax applies to different business structures.

Jenkins said common improper private expenses, made either in error or on purpose, are motor vehicles, expenses associated with home offices and overseas travel.

Some of the unintentional and basic mistakes observed in the ATO’s recent work include:

  • forgetting to check all bank accounts for interest
  • forgetting to correctly report dividends and franking credits
  • unable to substantiate small business expense claims
  • not completing an annual reconciliation of income tax return information and business activity statements
  • little calculation errors, transposition of figures
  • claiming business expenses at the GST inclusive rate rather than GST exclusive (when registered for GST)
  • over claiming agent fees, where the agent fees relate to more than one entity or taxpayer
  • not including income from coupon sales.

One of the more common adjustments the ATO make relates to the incorrect claiming of private expenses in the business. Private expenses the ATO frequently observe being over claimed include:

  • motor vehicle
  • telephone expenses
  • expenses associated with home offices
  • overseas travel.

At the more egregious end, the ATO see a range of behaviours that indicate businesses operating in the black economy. Some examples include:

  • Deliberately omitting income that has been diverted to personal bank accounts and mortgages
  • deliberately omitting cash income
  • not all sales put through the till or invoiced
  • not reporting income from weekend sales
  • paying staff in cash from cash takings that are not reported.

So what steps can you put in place to reduce the chances of a visit from the ‘Mobile Strike Team’ in 2019?

Take a responsible approach to your business. To claim an expense, the money must have been spent on your business. Report everything to your accountant and give consideration as whether it relates to the business entirely or not. When a claim is a combination of business and private, claim only the business share.
Records are required to demonstrate how claims have been calculated, such as bank statements, receipts, and the method (and support such as logbook) for any private use apportionment.

Importantly, use a reputable and fully qualified accountant such as Holmans.

Need help and want more information? Call Holmans for assistance on (07) 5430 7600 or send us an email.