The ATO is watching…
The new Government can be expected to continue funding the ATO to put in place mechanisms that will improve the integrity of the tax system and chase down those that want to operate outside it or who are understating income or overstating expenses.
The ATO is actively monitoring businesses by using up-to-date third-party information and risk analysis to find businesses who might not be correctly meeting their tax obligations.
How this may work is best shown in the below case study.
A hairdresser paid cash to a decorator to refurbish three salons.
The decorator buys paint and furnishings from a local supplier paying in cash and asks for them to be delivered to the salons.
As part of its normal data collecting, the ATO asks the supplier for a schedule of names and addresses of recent sales. The ATO are unable to find the decorator in their system. No tax return has been filed for the last 10 years. By visiting the delivery address the ATO identifies the decorator and commences an extensive investigation.
The ATO then focuses on the hairdresser. They are not able to see in the accounts the payment to the decorator. The ATO complete a living expense analysis and conclude that the amounts required by the hairdresser for day to day living is not supported by the income declared on the tax return. Not all hairdressing income has been included.
Tip! Living expenditure worksheets that allow business owners to undertake in-depth analysis of their household annual incomings and outgoings to show that the income declared on the tax return supports their actual life style are available. If you are interested in completing such worksheets, discuss this with your tax adviser. ■
Jail time for labour hire operator
On 15 May, the County Court of Victoria sentenced a director of a labour hire company to six months jail for failing to pay to the ATO more than $664,000 in PAYGW from 49 employees; filing 136 false tax returns with refunds of $187,994 for workers (many who had left Australia) and the non-filing of Business Activity Statements (BAS). Monetary penalties were also imposed.
This case shows the extent that information and data analysis are available and used by the ATO to identify those outside the tax system or who understate income or overstate expenses.
Jail time and substantial penalties may result. If you have concerns that your business has made a mistake or left something out, you should discuss this immediately with your adviser. ■
Ref: TaxWise Business June 2019