With the end of financial year approaching, now’s the time to review your current financial practices to make sure you’re in line with the Australian Taxation Office’s (ATO) compliance program.
MWM Advisory director Melanie Wear says it’s important for businesses to fulfil their obligations properly and comply with the ATO requirements in order to avoid an audit.
“The ATO has been clear with their compliance program and are active in their review and audit practices,” says Mrs Wear.
“They have invested hundreds of millions of dollars in their data-matching software to ensure businesses comply with their tax and super obligations.”
Mrs Wear says that businesses need to do everything they can to comply with the regulations set out by the ATO to avoid being caught out.
“Businesses need to demonstrate ‘best practice’ by having an active tax risk management process in place that involves the business management team and their advisors,” she says.
“Then your accountant can be proactive in identifying and rectifying audit triggers as they arise.”
Mrs Wear says that businesses need to be on top of their compliance obligations if they want to avoid an ATO audit.
“The data matching resources the ATO has available are becoming increasingly sophisticated every year,” she says.
“Business owners need to be on top of their game when it comes to compliance and seek the advice
of a professional who can mitigate any risk.
1. Ensure your financial performance isn’t out of step with your industry
The ATO will statistically analyse tax returns and compare performance to industry peers, based on the industry recorded on the company tax return.
If the business is inconsistent with the industry stipulated, it could be an indicator of tax issues such as unreported income, transfer pricing and other issues.
2. Don’t have variances between tax returns and business activity statements
Reconciling the information on your company tax return and business activity statement is a crucial part of tax risk management. Large variances in the information reported on each statement is likely to trigger an ATO audit.
3. Pay employees the correct amount of super
If employees lodge a complaint with the ATO about incorrect or late paid super, this will definitely result in an ATO audit. The audit may start out as a review of the company’s super obligations but will quickly turn into a full audit if the process isn’t managed appropriately.
4. Don’t lodge returns late
If a business consistently lodges returns after the due date, the tax office will view this as a poor compliance history and this will negatively impact the ATO’s perception of the business.
5. Don’t disclose items incorrectly in the business tax return
The tax return is the main way the ATO gathers information on a business. If mistakes are made consistently when disclosing items on the tax return, this will flag the business for review.
6. Avoid consistently showing operating losses
The ATO regards three loss years out of five as indicative of problems. Though there may be genuine reasons for the problems, the ATO will want to investigate.
7. Be aware of any Fringe Benefits Tax (FBT) obligations if there are company-owned motor vehicles
If you posses a company-owned vehicle and also use it for purposes unrelated to work, you may be required to lodge a FBT return if you do not adjust for private use on the company tax return. Make sure you also check to see if any of your company vehicles are deemed ‘exempt’ from the FBT provisions.
Please consult your accountant on the appropriate methods for dealing with the company-owned vehicle.
8. Avoid negative media coverage
If a company receives negative media coverage, this is likely to come to the ATO’s attention. Many business owners are also selected for an audit after the sale of a high-value asset is reported in the media.
9. Don’t show large fluctuations in financial position
Tax returns are compared year-on-year and large fluctuations in financial position or particular line items can trigger an inquiry.
10. Avoid international transactions
International transactions are a key focus for the ATO, who are always on the lookout for transactions with international-related parties, transactions within tax havens and material funds transferred in and out of Australia.
It’s not just large businesses that need to be wary here. Small and medium-sized businesses with international transactions should seek advice.