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Small Business Tax Avoidance: A Hot Ticket For The ATO26 April 2023
Tax season is here, meaning it’s time to ensure everything is in order to file your taxes. It could also mean that you could be up for a business tax audit.
No business is immune to a tax audit, and one can come at any time from the ATO. Sometimes when you least expect it.
Tax audits come in different forms for various reasons. There are five types of audits that small businesses must be aware of.
BAS / GST Audit
The ATO carries out GST and BAS Audits. These are to check if small Australian businesses follow their legal obligations and adhere to the system. Essentially, these audits examine the GST and BAS statements that a business files or doesn’t file as an operating entity registered for GST.
Several factors may trigger a GST or BAS audit, including:
- Failure to submit BAS statements
- Large or unusual GST refunds
- Overstating GST input tax credits
- Understating GST
- Reporting significantly different GST amounts compared to other businesses in the same industry
- Sudden changes to international financial arrangements.
To avoid a BAS/GST Audit, businesses should maintain detailed quarterly GST reports, including invoices, purchases, GST collected and paid, and transactions that do not attract GST.
It is also crucial to keep copies of all receipts, tax invoices, bank statements, credit card statements, and cash register receipts, both in hard and soft copies.
Generating financial statements for every three-month period and safeguarding accounting information is also vital. Businesses need to maintain records of payroll reports used for GST reporting, as this is often a required component.
Super Audit (SGC)
The superannuation guarantee is a mandatory amount an employer must pay into their employees’ super fund per employment conditions. This amount as of 1 July 2022 is 10.5% of the employee’s ordinary time earnings (OTE) and excludes overtime payments.
Typically, these payments are made alongside the employee’s income, but the due date for payment is quarterly. Employers who fail to pay the super guarantee into their employees’ super fund by the due date will face the Super Guarantee Charge (SGC), essentially a fine.
The ATO charge consists of three parts:
- Super guarantee shortfall amounts – the amount an employee was owed in super but was unpaid.
- Nominal interest on shortfall amounts – currently 10%
- Administration fee – $20 per employee per quarter
Under the SGC scheme, an employer who misses a payment must submit all necessary payments and paperwork independently to the ATO. Failure to do so may result in financial penalties, director penalty notices that hold the director of the organisation liable, or a garnishee notice.
It’s essential to note that incorrect super contributions can prompt employees to notify the ATO, which could lead to further investigation and subsequent audits.
Income Tax Audit
When the ATO conducts an income tax audit, it aims to verify if all income declared, deductions claimed, and tax-related obligations have been accurately calculated and reported.
Several factors can trigger an income tax audit, such as:
- Running a primarily cash business
- Incurring the Superannuation Guarantee Charge
- Inconsistent income lodgements
- Discrepancies between tax and BAS statements.
Fair Work Audit
The Fair Work Ombudsman is responsible for ensuring that employees are paid fairly and working under satisfactory conditions, particularly young and inexperienced employees who may be vulnerable to underpayment and poor working conditions. If your business operates in an industry or area with a high volume of complaints received by the Fair Work Ombudsman or your employees submit complaints, your business may be audited.
During a Fair Work audit, several aspects will be scrutinised, such as:
- Wage records, including pay slips
- Correct payment for work
- Classification of workers
- Overtime payments
- Provisioned meal breaks
Cash Economy Audit
The ATO considers all undisclosed legal transactions and evading tax as part of the cash economy, which is challenging to quantify as it is a hidden activity. In collaboration with tax practitioners and small businesses, the ATO has created a Cash Economy Audit to evaluate tax evasion within this economy.
If your business is selected for this audit, the ATO will contact you by phone to schedule a meeting to discuss why you were chosen, explain your obligations, and review your records.
An assessment of your cash spending involves sampling, estimating or judgment by:
- Using small business benchmarks
- Using taxation statistics
- Information in financial records provided during the audit
- Statements or disclosures you provide
- Information from third parties, such as banks and suppliers
- Information from previously lodged returns
To avoid the costly penalties associated with audits, having a qualified tax advisor managing your financial statements is crucial. They will ensure that all statements are filed accurately and on time, keeping your business compliant and minimising the risk of audits.
Don’t wait until it’s too late – take action to protect your business and its finances. Contact the tax team at Condon Noller today.
Condon Noller’s Tax Audit Retainer
Condon Noller has exciting news for its loyal clients! We have a new retainer offering a valuable service package worth $20,000 to assist with ATO tax audits related to forms we have prepared and lodged on your behalf.
Although many ATO audits are random and not caused by taxpayer error, the process can still be costly and time-consuming. Responding with the required level of detail and securing a positive outcome can be challenging, often requiring more time and effort than preparing the original form.
This is why we offer this retainer, which is not an insurance policy but a personalised alternative to tax audit insurance, exclusively available to our current clients. Opting into the retainer is purely voluntary, and participation is not obligated or expected.
If you are an existing client and we have prepared and lodged on your behalf, contact us to learn more about this amazing opportunity!