In an ever changing world, two things remain relatively fixed – death and taxes (what a cheery way to start a blog!!) But as we come to the end of another tax year, you might be thinking (and if you’re not, maybe you might begin thinking) now’s the time to reflect on how best to deal with the least final of the two – FY17/18.
Technology has made keeping accounts, filing taxes, reconciling bank accounts easier than ever. However, that same technology, also brings with it a sting in the tail. What sting is that exactly? It’s the ease of tracking all your financial transactions, bench-marking your accounts against others in your industry and the ease of picking those that don’t add up – in both the literal and figurative sense.
Each year, the Australian Taxation Office improves its algorithms for detecting discrepancies, without necessarily helping individuals to resolve these discrepancies in a cost-effective manner.
You may even have seen TV and news pieces in the last couple of months showcasing instances where, even the mildest mistakes are becoming more noticeable to the ATO – especially around sham contracting (please check you don’t fall into this category as either an employer or employee).
Why we need an ATO
With 13.5 million individual tax returns (2015-16 statistics) to sort through, the ATO is faced with an immense task each and every year. And let’s face it, the taxes we all pay, provide the broader Australian community with a whole host of good things like infrastructure, education, healthcare, pensions, economies, etc. So the ATO really do undertake a vital task on everyones’ behalf.
The problem with honest mistakes
However, with such a monumental task, comes power and resources. A power which individual taxpayers and small businesses, find it nigh on impossible to challenge themselves if they have to. What’s more worrying, ATO decisions for ‘mistakes’ can have disproportionate and very material consequences.
That having been said, the small business obudsman, has recently fought for and won, we believe, the right of independent review for small business owners on serious ATO cases. But when you’re trying to run a small business, it can take your standard day’s operations to a whole new level of difficulty.
The vast majority of Australia’s 1.6 million business owners run responsible businesses, where they work hard and pay their dues to the community. Hence, you might think, you’re not likely to represent a threat to the ATO, and hence any issue will eventually be resolved properly.
However, merely being suspected of owing tax, running an illegitimate or insolvent enterprise can be enough for the ATO to seize assets, freeze bank accounts, or put your business into bankruptcy in order to settle the debt.
For the ATO, putting your business on hold until the matter is resolved is an obvious, painless (maybe even appropriate) course of action. But that can mean cancelling your ABN/ACN without notice, garnisheeing money from your bank accounts, and business owners can do very little to stop them, at least, in the short term.
So what can you do to minimise those risks?
Minimising your risk
When it comes to staying on the right side of the ATO, it’s better to be safe than sorry and proactivity is key.
- Know your obligations under ASIC. Ignorance is not bliss nor is it an excuse. You can read more here.
- Keep really solid, tidy records. Messy records are a big red flag for the ATO. And especially with Xero and receipt management apps, keeping solid records isn’t the arduous task it use to be.
- Only claim what you use for business. Yep, that sounds basic, but that bottle of grog you bought for Aunt Mary, isn’t a claimable business expense (unless Aunt Mary is a registered employee who has done a sterling job (that’s easily verifiable) and you’re saying thank you in the same way you do to other employees).
- Make sure you keep all your business receipts for five (5) years after the date you lodge your tax return. This is likely to include all your financial records, company deeds (if you’re a company), lease documents, meeting minutes, receipts/invoice copies, etc.
- If at any point, you’re going to be late with a BAS lodgement, a payment, etc, pick up the phone and call someone – either your accountant or the ATO directly. Don’t wait.
- If you run a business and you’ve not got a solid relationship with your accountant, start building one now. Calling around in an ‘emergency’ audit (or worse) situation isn’t the best time to start that kind of relationship.
And that’s where we can help. If you’re thinking it’s time to build a better relationship with an accountant, or you’d like help implementing some cloud accounting systems to put better systems in place, we’d be delighted to discuss it with you. You can give us a call on 02 6023 1700 or drop us a note via the form below.
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If you've got financial or business questions, or you just want to run something by us, we'd be delighted to really talk to you – in person, over the phone - call us on 02 6023 1700 - or you can use the form below and we'll get back to you.
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