The ATO is watching

With the end of the financial year only weeks away, now is the time to ensure you’re not caught out with your ATO reporting and compliance requirements.

After all, the best way to start any new year is to be in good shape, and the ATO have provided plenty of information to ensure you are. Your accountant should also be able to give you the right advice.

However, when push comes to shove, it’s your responsibility to know, and there are over 445 million new reasons why you need to be across your obligations.

In the Federal Budget the Government announced an increase in funding for the ATO of $445 million to fund additional activities that will promote voluntary GST compliance and to increase the “visibility of the Tax Office in the community”.

In particular, the ATO will focus on businesses operating in the cash economy by developing benchmark ratios indicating income ranges that are expected to be reported by these businesses.

$107.9 million has been put aside to identify and bring greater audit scrutiny to small businesses using the cash economy to avoid their GST obligations.

Over the next four years a further $337.5 million will assist the ATO in addressing issues relating to fraudulent GST refunds, systematic under-reporting of GST liabilities, non-lodgement of GST returns and non-payment of GST debts.

For all SMEs there are a few key areas the ATO will have under the spotlight. These include:

1. Providing correct FBT treatment of motor vehicles.

2. Making sure employer superannuation guarantee payments are on time and correct.

3. Business owners using loans, payments and debt forgiveness to distribute private company profits to shareholders and their associates and avoiding the correct payment of tax in the process.

4. Guarding against attempts to offset capital losses against income and raise awareness about CGT and record keeping requirements.

5. Incorrect claims in relation to carry forward of losses deducted against income in later years.

6. Meeting PAYG and other employee entitlement obligations, use of accurate ABNs and contractors.

7. Improving on-time lodgement rates and ensuring lodgement obligations, including business activity statements and income tax returns, are met.

One way the ATO are checking lodgement obligations is through data matching, an area that is becoming increasingly used to identify reporting issues.

The ATO can data match your annual returns with information from banks, Medicare and other government agencies enabling better identification of mistakes, adjustments and potential tax avoidance for audit and investigation.

Self managed super funds will also come under the spotlight. Compliance with lodgement requirements as well as compliance with rules relating to investments, borrowings and in-house assets will be scrutinised.

Individuals should be aware of the correct reporting of shares and options and the handling of income-splitting arrangements for executives and directors of private companies.

Accurate work expense claims will also be watched by the ATO.

As a potential new financial year’s resolution, make sure you are aware of your reporting requirements and are compliant in your dealings with the ATO. It will make for a far better start to 2010/2011.

Marc Peskett is a partner of MPR Group a Melbourne based firm that provides tax advice to innovative businesses, as well as accounting, business advisory and financial services to fast growing small to medium enterprises.