The Tax Office has small business square in its sights this year, with PAYG obligations, trusts, profit shifting, eCommerce and the construction and building industries all marked for extra compliance monitoring during the 2013-14 financial year.
The misuse of trusts, profit shifting, complex private structures and dodgy deductions for both small businesses and individuals will be given extra scrutiny this year as well.
And if you’re a sales and marketing manager, then look out – your deductions will be under the microscope.
The ATO has released its compliance monitoring report for the year ahead, the annual document which outlines the areas where the tax man will be spending extra time looking for errors and compliance.
Not only has the ATO been given huge budgets over the past few years to increase certain compliance activity, investment in technology is making these campaigns much more successful – in 2012-13 the ATO raised $2.1 billion in liabilities from SMEs.
New technology, such as data matching, is making the whole process even easier. Over the next year, the ATO expects to make 640 million matches for transactions, especially for those made by wealthy individuals.
But small business will feel the brunt of this technology, too – the ATO will make 17,000 “employer obligation checks” in the year ahead.
It doesn’t stop there. Over the next 12 months, the ATO expects to make 1000 audits of medium-sized enterprises, another 1000 for wealthy individuals and 2047 checks for ensuring compliance with GST laws.
While the ATO will be cracking down on any number of areas this year, these are the key areas you need to know about in 2013-14:
The ATO thinks SMEs are failing to report income, and are making some suspicious concessions claims as well.
These apparently range from “small businesses attempting to hide income and operate in the hidden or cash economy to companies inappropriately seeking capital gains tax concessions available to business”.
In time, the ATO says, businesses which fail to report income will be easily identified through data matching and other technology.
“Any business that fails to properly engage with us may be issued with a default assessment or, in some cases, prosecuted.”
The ATO has always been keen on GST compliance, but this year it will be extending that focus to businesses in the wholesale trade, manufacturing, financial and insurance services and retail industries.
In particular, it said, it will encourage SMEs in high-risk industries to conduct “health checks” on their business systems.
The ATO says it still sees more businesses engaging in complex restructuring efforts, which attempt to disguise asset sales or manipulate their values.
“Some businesses attempt to reclassify revenue and capital items so they can inappropriately access concessional tax treatments. Others simply fail to disclose capital gains tax events or they claim the small business concessions when they are not eligible.”
More checks will be conducted to ensure those don’t happen. If you’re a business with any sort of question about how to appropriately structure or report capital gains, the best course of action is to speak with the tax office.
“We will continue to focus on ensuring that foreign residents disposing of Australian property disclose these transactions and pay capital gains tax where liable,” the report said.
The ATO crackdown on trusts was announced in the May Budget, when the government said a new taskforce would be established.
The ATO says most of the 700,000 trusts registered in the tax system are discretionarily used for business and investments, but a new type of trust has emerged in which participants reduce trust income to direct tax liabilities to others.
“Our new trusts taskforce will focus on these and other tax avoidance and evasion schemes.”
The ATO expects to make about 5000 matches regarding trusts this year.
The ATO will continue its crackdown among large- and medium-sized multinational companies regarding profit shifting – as a quick glance at headlines over the past six months will tell you.
But the tax man will also be cracking down on eCommerce businesses, saying it is “looking closely” at the industry’s growth and the opportunities these businesses might be using to circumvent tax laws.
“Our risk assessment, audit and advance pricing arrangement work help us address profit-shifting activities. It is an area that causes us continuing concern and the government has given us additional funding to help us reduce this risk.”
The government has been keen on catching any employers attempting to categorise their workers as “contractors”, and the ATO will be fulfilling that quest.
“We will investigate employers that intentionally try to avoid their tax and superannuation obligations by improperly treating workers as contractors rather than employees. We will assist employers to understand and meet their obligations.
“Where non-compliance is detected we will apply penalties.”
Employers which fail to recognise fringe benefits tax obligations will be targeted. Recently, the ATO said, FBT obligations for cars revealed “many cases” where employers failed to recognise their liabilities.
“We are increasing our efforts to identify employers that may have an FBT obligation but are not in the FBT system.”
PAYG withholding obligations are mostly followed by businesses, but as the ATO points out, there are those who aren’t meeting their obligations. They’ll be targeted in compliance this year.
The ATO has spent a lot of time targeting wealthy Australians, and this year won’t be any different.
Some individuals who have high gross incomes have been avoiding tax obligations, says the ATO. This includes failing to report income, dividends, capital gains and foreign income.
“The business affairs of wealthy individuals often include complex groups involving companies, trusts and self-managed superannuation funds, which may be structured in ways designed to under-report income or not disclose asset sales.
“The blurring of distinctions between business and personal income and expenses is a common issue attracting our attention.”
Usually, the ATO cracks down a few different industries every year regarding deductions. This year, building and construction labourers, construction supervisors and sales and marketing managers will be targeted.
Work-related travel expenses will be scrutinised this year in individual returns. The ATO says incorrect claims have included basic errors, incorrect advice and poor record keeping.
Property owners, including new rental property owners, will be given advice to make sure they comply with all the relevant tax obligations.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
