The Australian Taxation Office (ATO) stressed improved understanding and collaboration with small businesses at a roundtable held in Melbourne.
The roundtable (hosted by CPA Australia) aimed to help small businesses navigate the ATOs’ compliance guidelines for small to medium enterprises (SMEs).
To stay off the Australian Taxation Office radar, don’t “overcomplicate your affairs in business,” notes the ATO’s Senior Director, Southern Region for Small and Medium Enterprises
“While taxpayers may not be able to avoid being contacted by the ATO, particularly if they have complex affairs or transactions in the risk areas identified by the ATO [below], having their affairs in order can limit the possibility of the ATO taking an initial contact through to a full audit,” says CPA Australia policy adviser Gavan Ord.
This means businesses should be going to their accountants now and asking whether their business affairs comply with the law, particularly in the ATO’s risk areas.
“It is easier for everyone, particularly the taxpayer, if your affairs are in order before the ATO comes knocking,” says Ord.
The ATO has more than 180,000 businesses and wealthy individuals that fit within the ATO's definition of an SME. The ATO defines an SME as one with a turnover of A$2 million to A$250 million. The sector as a whole accounted for approximately A$74 billion of revenue collection in the year 2010-2011 – or 27.4 per cent of ATO collections.
Engagement and understanding are going to be critical.– Greg Nielsen, Pitcher Partners
Because of the size and importance of the SME category, which is serviced by more than 10,000 tax agents, the agency’s new compliance guidelines focus on improving relationships between the ATO and taxpayers.
“Engagement and understanding are going to be critical,” stresses Greg Nielsen, partner at the accounting firm Pitcher Partners. “Tax legislation is growing in complexity… and [so too] the ease with which people can get something wrong through honest mistake and inadvertent omissions.
"Also, the fact that our self-assessment system means the responsibility is on them [the taxpayer] to work through these provisions and come to an understanding – that has to be taken into account as part of any greater engagement by the Tax Office.”
How does the ATO identify taxpayers at risk?
“We endeavour to categorise taxpayers according to their perceived level of risk,” says Johnson. “To do this, we use data matching from tax returns and third-party data: press, referrals, understandings internally, data from ASIC, AUSTRAC… to understand if we have a real reason to perhaps be approaching the taxpayer.”
“We tend to look at basic obligations: registration, lodgement, reporting and payments.”
Johnson says the ATO’s approach is a collaborative one: the agency seeks to work with taxpayers to help them understand their rights and obligations.
“The market is very broad and the tax office is a finite resource,” says Johnson. “It is much better for us to work with business and practitioners to hopefully achieve win-win outcomes and optimise voluntary compliance.”
5 priority risk areas
Johnson outlined five risk areas that will be under the ATO’s scrutiny:
• Fraudulent phoenix behaviour: The deliberate evasion of tax and/or superannuation liabilities through shutting one company and continuing business operations through another.
• Division 7A: An integrity measure aimed at preventing private companies from making tax-free distributions of profits to shareholders or their associates. The ATO acknowledges that Division 7A is a complex area of tax law and that non-compliance may occur through inadvertent omission or honest mistake. These cases may be considered at the discretion of the Tax Commissioner.
• Trusts: Johnson noted that the ATO would continue to focus on tax planning and the use of trusts. The ATO looks for correct lodgment of returns as well as compliance with the Trust TFN WHT (tax file number withholding tax) measure.
• Internationals: Transfer pricing and profit shifting are two areas of ATO concern.
• Capital gains tax and foreign residents: The ATO is on the lookout to ensure that the foreign resident CGT exemption is legitimately applied.
“We’re not about just straight revenue collection,” assures Johnson. “As an overarching principle, we endeavour to ensure that all Australians pay their fair share.”
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