Did you know that a small business can get a visit from the Australian Taxation Office with the surprising message, ‘We’re from the ATO and we want to help’?
At the centre of the ATO‘s help program is a business register which has been created following a business, for example, filing its first group tax return.
An officer from the tax office will then set up a meeting with the business owners, who can have a tax agent present if they want, to check that the correct record-keeping procedures are in place. There are tax advisers specifically assigned to this task force.
“Our work with small business shows time and pressure with record-keeping leads to downstream problems,” says the ATO‘s deputy commissioner, small business.
Apart from the one-off visits for new businesses, those on the register are monitored for two years to ensure that no tax problems develop.
If not checked early, tax mistakes may result in fines and back-tax payments but also could undermine cash flow, which is one of the biggest reasons for small businesses going bankrupt.
Don’t get caught
According to the ATO, businesses were surprised, but also very appreciative of the ATO‘s involvement.
There are four areas where small business often performs poorly:
o Record-keeping is often inadequate
o Budgeting for tax obligations is unrealistic
o Fringe benefits tax issues, where the business owner is unaware that there is an FBT liability
o Business structure problems, which give rise to different compliance issues.
On the issue of FBT, the ATO suggests that a business owner should simply ask whether the business delivers a benefit which is not in cash, particularly if the owner is also on the books as an employee.
The part-time use of a car owned by the business is a classic FBT issue. Aside from being keen to educate small businesses on FBT issues, the ATO is also concerned about businesses which are not really businesses.
Hobby farmers, direct marketers and people in the arts and craft area are sometimes targeted and tested to see whether they are a real business.
“There is a large number of people who are claiming tax deductions who are not really in business,” the ATO says.
However, the ATO doesn’t necessarily presume that home-based consultants are non-businesses.
Where do you fit in?
While some workers simply leave a job and become self employed to reduce the tax obligations of both the employer and the employee, the ATO conceded that in this age of downsizing some genuinely unemployed people were going into business for themselves.
The ATO suggested the following tests as key determinants of the existence of a business:
o Is there more than one customer?
o Is the consultant available to work for anyone?
o Does the consultant advertise?
All these characteristics of a real business would be important when the ATO investigates the credentials of a business.
In addition to the visiting program, the ATO holds free seminars and issues several helpful publications such as A Tax Guide For New Small Businesses, and A Guide To Keeping Your Business Records.
Getting close and personal with the ATO might be a way to keep on the right side of this often misunderstood organisation.
Author: Biz Think Tank
BizThinkTank is a dedicated small business website, with a wealth of regularly updated tips and articles. Whether you’re looking to start a business or grow your business, you’ll find a wealth of handy advice and information.