The ATO has warned small businesses about the following 3 common issues that occur when they lodge their tax returns:
- Failing to report all of their income, eg depositing income into private bank accounts or not declaring cash sales
- Not having the necessary records to prove small business expenses claims and
- Claiming private expenses as business expenses eg not recording director’s fees or drawing properly
To assist taxpayers to get their tax affairs right, the ATO will visit up to 10,000 small businesses over the next 3-4 years.
The ATO continues to highlight its areas of focus ahead of the EOFY and taxpayers should take these into account when planning for the year end. In the ATO’s view there is a significant ‘tax gap’ in the small business sector, and they are examining taxpayer behaviours and risks to assess the extent of this. Whilst the ATO have not quantified this yet, initial work indicates the tax gap here is much larger in percentage terms than other sectors, and could be as high as $10bn.
We are advising small business clients to ensure they have accurate records to show:
Income has been recorded correctly and is complete, in particular that business income is paid into business bank accounts and kept separate from personal financial matters
Pay as You Go Withholding has been applied to all relevant payments and recorded and reported correctly
Other obligations such as BAS, employer and TFN reporting is timely and up to date
Single Touch Payroll records and reporting are complete
A good record on basic business tax reporting and compliance is less likely to raise a flag with the ATO which could lead to an audit.
Contact your Bentleys advisor today to discuss your next steps.