ATO Focusing On Small Business Taxpayers
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ATO Deputy Commissioner for Small Business Ms Deborah Jenkins has given an address on matters relating to small business taxpayers. Issues discussed include the small business income tax gap, the ATO’s compliance focus for small businesses and how the ATO addresses risks in the small business industry.
Small business income tax gap
The small business income tax gap estimate and the associated Random Enquiry Program (where the ATO reviews the income tax affairs of randomly selected small businesses) continue to play a central role in helping the ATO understand compliance challenges faced by small business.
The net small business income tax gap estimate for 2017–18 is 11.5% (or approximately $11.1 billion per annum). Of the businesses in the Random Enquiry Program, around 70% were doing their best to report correctly and pay the right amount of tax.
Attributes common to these small businesses were:
- Good record keeping.
- Effective use of technology to manage their business; and
- Ongoing engagement with a tax professional – especially before making important decisions or making changes to their business structure or buying or selling assets.
Approximately 4% of small businesses deliberately engaged in shadow economy behaviour. The most common shadow economy behaviours observed were:
- Deliberate omission of income.
- Deliberate omissions in record keeping.
- Over claiming of deductions.
The program has highlighted that tax practitioners continue to have a positive impact on small business compliance and behaviour, and small businesses that are getting it right regularly seek support and advice from a tax practitioner that understands their business and business model.
Compliance focus for small businesses
The ATO’s compliance focus areas for small businesses are:
- Using third-party data like the Taxable Payments Annual Report data to ensure that more than $390 billion of income from contract work is declared in tax returns.
- Monitoring loss claims, particularly for first time loss makers, and closely monitoring loss carry back and temporary full expensing measure claims.
- Monitoring small businesses to ensure they are making appropriate distinctions between private and business activities and accounting for these accordingly.
Taxpayers also need to make sure that JobKeeper and JobMaker Hiring Credits amounts are included as income in their tax returns.
In addressing the risk to tax non-compliance, the ATO analyses the business cohort to understand the prevalence of different behaviours, and how they manifest into risk areas — including registration of business activity, lodgment, income, expenses, engaging labour and payment.
We Are Here To Help…
There are many complex issues relating to small business taxpayers and ensuring compliance. It’s your responsibility that your business is compliant. Our Business Services team are here to help you work through these to ensure your business’s compliance. Call us on 03 5821 9177 and speak with a Business Advisor.
Source: Deputy Commissioner for Small Business Deborah Jenkins, How the ATO is addressing risks in the small business market, ATO website, 26 May 2021, accessed 27 May 2021.
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