It seems as though 2014 has signaled that the ATO will be flicking the ‘on’ switch in regards to the number of questions, reviews and audits they are set to conduct. Maybe they are just trying to clean up their internal affairs or it’s a directive around raising some extra revenue! Whatever the reasoning, the ATO is set to cause many people and many businesses out there one big headache!
Let’s examine some things that may cause a trigger around your affairs;
1. Have financial performance that is out of line with your industry
The ATO analyses all tax returns, from small ones right up to the larger ones. For any business what they pay extra attention to is the business performance standard compared to that of their industry peers. This is based upon the industry type declared on the front page of the tax return. The ATO consider that if you’re inconsistent with the general industry averages, this can be highlight tax issues. For example, unreported (cash) income.
2. Don’t pay the legal minimum amount of superannuation on behalf of your employees
What happens if an employee complains to the ATO that their employer has not paid them the right amount of superannuation, or hasn’t paid it on time. We have seen this happen on many occasions and it is a trigger for a review or audit from the ATO. Often these types of audits can begin as a review of superannuation guarantee obligations but quickly escalates to include income tax, GST or even Capital Gains Tax issues if the process isn’t appropriately managed.
3. Variances between BAS’s and tax returns
Reconciling business activity statements and tax returns is an integral component of any tax risk management. Quite simply, discrepancies between the information reported in a tax return when compared to the activity statements is likely to trigger an ATO review or audit. Your proactive accountant needs to make this a key part of their preparation process – just like we do at ZJL Partners.
4. Poor record of lodging returns on time
Are you always late with your lodgements? I’m not just talking about your tax return, you must consider all reporting obligations. This would include activity statements, superannuation responsibilities, fringe benefits, etc. Late payment of any tax liabilities will also be frowned upon. A good compliance history can be invaluable due to the way it improves the ATO’s perception of you and your business.
5. Consistently show operating losses
Are you consistently showing losses, but enjoy a holiday each year and live in a beautiful home? The ATO considers 3 loss years out of 5 as indicative of problems. You may have genuine reasons, but the ATO is likely to want to investigate these losses. Who wants to run a loss making business anyway – a profitable one will always be better?
6. Own motor vehicles, but don’t lodge an FBT return
The ATO receive data from many sources, one being the State motor vehicle registries (in Victoria this is Vic Roads) regarding individuals or businesses that have purchased vehicles. For businesses, the ATO then matches these capital purchases with information reported in tax returns, activity statements and fringe benefits tax returns. They also expect that there will be at least some private use on the motor vehicle. You need to ensure that all ownerships and business usages are identified and reported to the ATO when needed.
7. Get the disclosure items wrong in your tax return
The tax return is the main way that ATO gathers information on you and your business. Making mistakes or getting these disclosures wrong and the ATO is likely to give you a call.
8. Show big fluctuations between years
The ATO compares tax returns on a year by year basis. Big fluctuations in financial position or particular line items in the tax return or activity statements will most likely trigger an inquiry from the ATO.
Don’t risk your business or yourself by being in the sights of the ATO. If you think you are at risk, get onto it now before it’s too late. If you’re not sure, it will be cheaper to have a risk review done by ZJL Partners rather than go through an investigation with the ATO!
Get in touch and look us up at www.zjl.com.au