A consistent theme this tax time is over-claiming and under reporting.
With the Australian Taxation Office (ATO) getting more and more sophisticated in its approach to data matching, taxpayers can expect greater scrutiny where their claims are more than what is expected.
There are around 3.8 million small businesses, including 1.6 million sole traders in Australia. They employ around 5.5 million people and contribute $380bn to the economy. Small business is also in debt to the ATO to the tune of $15bn.
This tax time, the ATO has stated they are looking closely at taxpayers:
- setting up or changing to a company structure
- claiming motor vehicle expenses
- who may not be correctly apportioning between personal and business use
There are a multitude of data-matching programs and benchmarks to catch out those attempting to rort the system.
For wealthy groups and medium businesses, the focus is on structuring to avoid tax:
- international risk – international profit shifting and corporate restructuring
- inappropriate arrangements that seek to extract profits or capital without the right amount of tax being paid
- high risk trust arrangements attempting to gain advantage beyond ordinary trust arrangements or tax planning associated with genuine business or family dealings.
If the ATO suspect there is a problem, you may be contacted to justify why decisions were made to structure your affairs or the affairs of your company in a particular way.
No tax deductions if you don’t meet your tax obligations
From 1 July 2019, if taxpayers do not meet their PAYG withholding and reporting obligations, they will not be able to claim a tax deduction for payments:
- of salary, wages, commissions, bonuses or allowances to an employee;
- of directors’ fees;
- to a religious practitioner;
- under a labour hire arrangement; or
- made for services where the supplier does not provide their ABN.
The main exception is where you realise there is a mistake and voluntarily correct it before the ATO begins a review or audit. In these circumstances, a deduction may still be available if you voluntarily correct the problem but penalties may still apply for the failure to withhold the correct amount of tax. There is also an exception for situations where you make payments to a contractor but then later realise that they should have been paid as an employee, as long as the worker has provided an ABN.
The Government has also proposed that from 1 July 2021, the ABNs of those required to lodge a tax return but have not done so will be cancelled, and from 1 July 2022, ABN holders will be required to confirm the accuracy of their Australian Business Register details each year.
Recording payments to contractors
The taxable payments reporting system requires businesses in certain industries to record and report payments made to contractors to the ATO.
From 1 July 2019, security providers and investigation services, road freight transport, and computer system design and related services businesses will need to collect specific information in relation to payments made to contractors (individual payments and total for the year). These businesses will need to lodge an additional report to the ATO with this information. The first report will be due by 28 August 2020.
Businesses within the building and construction industry, cleaning, and courier services need to report payments to contractors in the year ending 30 June 2019 by 28 August 2019.
This reporting requirement is focussed on industries identified as active participants in the black economy, raising around $2.7bn per year in income and GST liabilities.