Common tax errors revealed: ATO visiting 10,000 businesses in nationwide compliance push

The tax office plans to visit 10,000 small businesses in the 2019 financial year in a nationwide compliance push designed to reduce the SME tax gap.

In a speech delivered to the Institute of Public Accountants National Congress last week, deputy commissioner for small business Deborah Jenkins said “mobile strike teams” are being deployed to weed out tax dodgers.

Jenkins said the effort would “protect honest businesses” from being undermined by “competitors who get an unfair advantage when they don’t report all of their income”.

“This is supported by mobile business visits to assist businesses with their obligations and identify businesses who may not be complying,” she said in remarks published to the ATO’s website yesterday.

Of the roughly four million small businesses the ATO deals with, it says almost a third (30%) don’t pay their tax on time.

Small business represented two-thirds of the outstanding debt owed to the ATO in 2017-18, totalling over $12 billion.

Work is still underway to finalise how big the SME tax gap — the difference between what the ATO collects and what it could collect if everyone was compliant — actually is, but so far this year strike teams have visited 3,000 businesses in six areas.

Thirty locations will be targeted in total in the compliance drive, Jenkins said, with teams already visiting firms in Box Hill (VIC), Adelaide’s CBD and Broadbeach (QLD).

Next on the list are Alice Springs, Darwin and Katherine (NT), as well as Geelong (VIC), Wollongong (NSW) and Launceston (TAS).

Six locations have already been canvassed, including Cairns (QLD), Canberra, Darlinghurst (NSW), Surry Hills (NSW), Bunbury (WA) and Busselton (WA).

Townhall information sessions are being included in the campaign, with presentations taking place in English and Mandarin.

Jenkins said the ATO wants to work with businesses that have unintentionally made tax errors to fix issues while using its powers to hold those intentionally dodging tax to account.

She explained the tax office is paying particular attention to the claiming of private expenses for business purposes, the attribution of personal and business use, omitted income and a lack of understanding over how tax applies to different business structures.

Jenkins said common improper private expenses, made either in error or on purpose, are motor vehicles, expenses associated with home offices and overseas travel.

David McKellar of Allied Accountants says while those with bookkeepers or accountants are generally not making simple errors, sole traders and those doing through own books are getting caught out.

“A majority of people who have no financial background probably know very little and don’t know the details of what they can and can’t claim,” he tells SmartCompany.

His advice?

“Take a sensible approach, report everything and give consideration whether it relates to the business entirely or not.”

The common mistakes the ATO has observed recently:

Forgetting to check all bank accounts for interest;
Forgetting to correctly report dividends and franking credits;
Poorly substantiated small business expense claims;
Businesses not completing annual reconciliation of income tax return information and business activity statements (BAS);
Small calculation errors, including transposition of figures;
Claiming business expenses as GST inclusive rather than GST exclusive;
Overclaiming agent fees where they relate to more than one entity or taxpayer; and
Not including income from coupon sales.

Jenkin’s advice for businesses

To claim an expense, the money must have been spent on your business — this doesn’t include childcare fees or clothes for the family.
When a claim is a mix of private and business, claim only the business portion.
Records need to be provided to demonstrate how claims have been calculated, such as bank statements or receipts.
Include all income, including cash, eftpos and online sales.
Sole traders still need to lodge tax returns, even if their income is below the $18,200 annual tax-free threshold.

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