Tax compliance and the micro business sector
There are 2.7 million micro businesses in Australia, collectively accounting for nearly two-thirds of the country’s tax debt at any one point in time, so tax compliance is an important issue for the micro business sector.
The tax debt of the micro business sector amounts to a lot of money, so it’s not surprising that the Australian Taxation Office (ATO) makes particular mention of the micro business sector in its compliance program.
It could happen to you
In case you think that your soloist enterprise is too insignificant to warrant attention, it’s worth noting that over 15,600 micro businesses were visited by the ATO during the 2009-10 financial year. Almost 613,000 micro businesses had their lodgements followed up by letter from the ATO and another 62,000 had the pleasure of a phone call, just to check they knew their tax compliance obligations!
Additionally, the ATO conducted many thousands of audits and reviews of micro businesses, raising approximately $100 million in income tax liability alone.
Under-reporting of income
In 2010, the ATO signalled that under-reporting of income remains high on its agenda when it comes to micro businesses.
Under-reporting is principally achieved through cash-in-hand transactions, and the 2010-11 compliance program indicates that they will adopt a number of measures to detect such transactions, including data matching and benchmarking.
Small business benchmarks
One method that the ATO uses to select small businesses for audit is to compare the financials reported to the relevant small business benchmark (SBB) to identify businesses that may not be declaring some of their income.
"Micro businesses claiming a tax loss for the first time can expect contact from the ATO as a matter of course."
The ATO has published SBB’s for more than 100 industries; if yours is one of them, now might be a good time to take a look.
This year the ATO has also been granted additional funds to look more closely at refunds being issued pursuant to business activity statements (BASs), and expects to verify more than 48,000 BASs lodged by micro businesses.
Losses by the micro business sector are also on the watch list, and the compliance plan indicates that micro businesses claiming a tax loss for the first time can expect contact from the ATO as a matter of course.
Whilst not specifically stated, it’s possible the ATO will be looking closely at micro business loss that is offset against other income (i.e. non-commercial business loss). With that in mind, if your micro business incurs a loss for the 2009-10 year, you should take specific advice on the deductibility of the loss.
Other compliance issues are associated with superannuation obligations, disposal of capital assets and personal services income.
Get help to get tax compliance right
Getting tax right is crucial for all businesses, regardless of size.
Unfortunately, micro businesses are particularly susceptible to getting it wrong when it comes to tax, especially those newer businesses with less time and fewer resources at their disposal.
The ATO has many support tools to assist micro businesses with their tax compliance obligations, and many of them are accessible from the ATO website.
For more tailored assistance, consult a professional advisor, many of whom now direct their services specifically to the micro and small business sectors.
Engaging a professional advisor, in the form of a lawyer, accountant and/or registered taxation agent should ensure that you not only comply with your tax obligations, but also structure your business in a manner that’s conducive to its ongoing success.
How do you keep on top of your tax compliance? Any tips or questions?