Tax office to roll out warning function, targeting SMEs with unusually high deductions

The tax office plans to roll out a new warning function that will alert small businesses to review their tax deductions if they are significantly higher than those of similar businesses.

The function, which already exists for individuals and sole traders, prompted almost 370,000 taxpayers to review their work-related expense deductions during tax time 2021. The electronic alerts are sent to taxpayers based on comparisons to individuals with similar jobs and expenses.

Speaking today at the Institute of Public Accountants’ National Congress event, Commissioner of Taxation Chris Jordan said the approach uses data to streamline compliance.

“We’ve recently expanded this approach to sole traders and are looking into extending this to other small businesses in future,” Jordan said.

In his virtual address at the national event, Jordan acknowledged that the past 18 months have been “challenging” for small businesses and accountants.

“This has been a challenging time for us all, particularly for small businesses, and we appreciate all you have done to help your clients navigate stimulus measures while continuing to help them meet their tax obligations,” he said.

The commissioner advised that the Australian Taxation Office (ATO) would adopt a “tailored” approach to small business tax compliance. His comments come after the ATO announced it had restarted chasing small business tax debts across Victoria, the ACT and New South Wales.

“Small businesses are a diverse group with varying needs and complexities, and we will continue to provide tailored support to assist you and your clients through these challenges,” Jordan said.

“We are committed to relieving the compliance burden, where we can, so small business owners can spend more time on their business and less time on tax,” he continued.

The ATO intends to focus on using data to streamline and strengthen its processes and compliance activities in the new year.

One example is the new ‘Data visibility — reported transactions’ service which will provide accountants and small businesses with access to information the ATO has received about the business from third-party providers.

The service will allow the data to be used for reconstructing lost or damaged records, tax planning and business management, and assisting clients with poor record keeping.

The tax office is also exploring how it can share internal risk rules and insights with digital service providers and other intermediaries to help businesses assess their own tax and super performance in their accounting software.

“We are still in the exploratory phase of that work, and we will continue to engage with you as we explore possibilities,” Jordan said.

The Institute of Public Accountants’ National Congress is a full-day event that takes place annually. This year, the event was held at JW Marriott Resort in Surfers Paradise and featured virtual and in-person presentations from a range of experts and industry figures.