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The ATO's 2017-18 audit hot spots for business taxpayers



The Commissioner of Taxation warned that individuals and businesses can expect increased scrutiny of their returns with particular focus on losses, high risk refunds, eligibility for tax offsets and employee share schemes.  Other areas of focus from the Compliance Program include the following:

  1. Highly paid company directors and executives;

  2. Over the next four years, the ATO's risk review and audit program for wealthy Australians (i.e., individuals with a net wealth of between $5 and $30 million) and large to medium sized businesses will increase to ensure they meet their tax obligations as the economy recovers;

  3. Businesses that do not declare all their cash income;

  4. Employers that fail to withhold and pay tax, or who do not make superannuation contributions for employees;

  5. 'Phoenix' activity where directors use serial liquidations to avoid their financial obligations;

  6. Cross-border tax schemes (especially those involving tax havens and transfer pricing):  and

  7. 'Dodgy' tax schemes (as referred to by the ATO) – in particular, the ATO is concerned about schemes that offer illegal early access to superannuation savings.

Other key areas of ATO focus are:

  1. Benchmarking – the latest ATO audit tool for dealing with the cash economy.

According to the ATO, the benchmarks are a 'self-management tool' that will help business taxpayers to:

Ø    compare their business performance with other businesses in the same industry;

Ø    check their tax obligations are being met, including recording all cash transactions;

Ø    work out whether they need to adjust their business and record-keeping practices to accurately report their income;  and

Ø    assess whether the ATO is likely to select their business for an audit or review – i.e., the benchmarks make it clear what the ATO expects from businesses in a particular industry and, therefore, make it harder for taxpayers to not report cash income.

Please click the link to email if you require us to perform the comparison of your actual result at June 2018 to the benchmarks and to identify differences.

  1. Contractors vs. Employees – what's in a name?


Generally, a worker is an employee if they:

·         are paid for the time worked

·         receive paid leave (for example, sick, annual or recreation, or long service leave)

·         are not responsible for providing the materials or equipment required to do their job

·         must perform the duties of their position

·         agree to provide their personal services

·         work hours set by an agreement or award

·         are recognised as part and parcel of the payer's business

·         take no commercial risks and cannot make a profit or loss from the work performed.

Please see link below to access the Employee/Contractor on-line decision tool

For contractors and employees different tax and superannuation obligations;

What are the consequences of getting a worker's status wrong?

Payers who incorrectly treat an employee as independent contractor risk severe penalties.

In particular, failure to withhold and remit PAYG withholding has the most dire consequences because the ATO 

        has very wide-ranging powers to ensure recovery of such amounts.  For example, the Commissioner can

make a reasonable estimation of an employer's liability and notify the employer in writing.  Once notification

has been provided, the Commissioner can commence recovery proceedings (e.g. winding up a company )

based on this estimate.

In addition, a general interest charge (GIC) may apply in respect of the unremitted withholding.

Furthermore, the directors of a company may also be personally liable (in certain circumstances) to pay an

amount equal to the company's liability, whether or not the failure arises as a result of a genuine mistake.

If a payer fails to make the prescribed superannuation contributions, the Commissioner can issue a default

assessment for the SGC (which is not tax deductible).  GIC may also apply.

  1. Company losses in the firing line.

    TAX WARNING – Company losses in the spotlight
    ATO  compliance activities undertaken in 2008-09 in relation to SME's (broadly, businesses with a turnover between $2 million and $250,000 million) raised tax revenue of $560 million and resulted in losses (both current and carried forward) of $1.1 billion being disallowed.  Refer to the ATO's Compliance Program for 2009-10.

    In particular, the ATO identified the following key compliance issues that continually arise:

    (a)   Over-claiming of losses due to errors in calculating/reconciling losses, particularly by SMEs and potentially also by micro businesses (i.e., with turnover under $2 million);

    (b)   Companies incorrectly recouping losses without taking into account ownership changes or the fact that a different business is being conducted (large businesses and SMEs) – i.e., failure to meet or correctly apply the deductibility tests for companies;  and

    (c)   Failure to keep records of old losses to prove claims.  It is in a taxpayer's interest to keep records substantiating losses until the amendment period for the assessment in which the losses are claimed has lapsed.  Refer to TD 2007/2 for information on the record-keeping requirements in relation to tax losses and net capital losses.

    A company that is not sure whether it is entitled to claim a deduction for tax losses should consider either seeking a private ruling, lodging its tax return without claiming the loss and then objecting against the assessment, or taking a reasonably arguable position in order to avoid penalties arising from claiming a loss that is subsequently denied.

(Information obtained from Australian Taxation Office and National Tax & Accountants' Association Ltd)



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