Small business: Here’s what the tax man is targeting this year
The $20,000 asset write-off will come under intense scrutiny this tax season amid concern some small businesses will try to rort the generous concession.
The Australian Taxation Office will use what they call data analytics to scour financial records for irregularities.
Payments to family members will also be a focus.
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Chartered Accountants Australia and New Zealand head of tax Michael Croker says the tax office will be on the lookout for abnormal purchases under the write-off scheme.
It allows business with a turnover of less than $10 million to deduct the full value of equipment purchased to the value of $20,000.
Previously it was only available for businesses that turned over up to $2 million.
“It’s such a generous tax concession and the eligibility criteria is going to bring a lot more business claiming it,’’ Croker says.
“People should buy equipment which is relevant to their business and is actually used in carrying on their business and makes their business more productive.
“It’s really good with tax to just play a straight bat.”
Keep it strictly business
Croker urges business owners to think twice about whether they need new equipment rather than simplying buying to get the tax deduction.
They should avoid “pub talk” suggesting it’s easy to cheat the system.
“Maybe you need a new dishwasher in the staff kitchen at work and instead someone says: ‘Oh, it doesn’t matter, go and buy a dishwasher and get it delivered and installed at home’,” Mr Croker says.
“People say: ‘Who is going to find out?’
“Well if you do dumb things like that no one can help you.
“The best chartered account in the world can’t help you if you’ve done silly things because someone tells you that it is a bright idea.
“Keep your business and your private expenditure separate. Don’t mingle the two.”
Keep it out of the family
Payments to family members should be at arm’s length with a “real jobs, real salaries” mantra rather than trying to sneakily split incomes.
Rules of prepayment – bringing forward tax deductions – needed to be strictly applied.
Similarly, those trying to derive income into the next financial year should be mindful of timing rules for recognised income.
What the tax man knows
Croker says the tax office has sophisticated software that looks not only for discrepancies in returns but large or unprecedented claims.
“It’s not just by reference to your history it’s also by reference to your peer group,” he says.
“If you run a sandwich shop they’re not just looking at your history, they are looking at how your treatment of items in the tax return compares with other sandwich shops in your locality of similar size.
“There is a lot of benchmarking going on.
“It’s more likely to result in a phone call or just a follow up letter to ask you some questions.
“It really helps if you use software which keeps track of your receipts and outgoings and reconciles it to the bank account.
“Good housekeeping is always a good idea.”
Australian Taxation Office assistant commissioner Deborah Jenkins says with thousands of small businesses registering each month, many owners are embarking on their first tax time experience.
She urges operators to read up on new concessions that include a lower tax rate for small business.
For the first time sole traders can access the ATO’s online deduction tool to keep track of deductions when on the go, while small business will be required to report less GST information come July 1, cutting red tape.
What the ATO will be watching
- Falsely representing annual turnover under $10 million
- Breaking down one large purchase into lots of less than $20,000 purchases
- False invoicing
- Collecting discarded cash receipts and making out you bought the equipment
- Buying a mate’s clapped-out ute and pretending its worth nearly $20,000
- Buying equipment for personal or home use, not for business use
- Private buyers giving funds to small business operators, asking them to buy equipment on their behalf
- Quoting a false Australian Business Number
- Non-business taxpayers misrepresenting their eligibility for an Australian Business Number
For tax help go to ato.gov.au.