Tax office forewarns businesses it will monitor temporary asset write-off and loss carry-back claims this EOFY

The Australian Taxation Office is warning small businesses that it will scrutinise claims linked to the temporary asset write-off and loss carry-back schemes this end of financial year.

Deborah Jenkins, ATO deputy commissioner of small business, told a Chartered Accountants Australia and New Zealand event on Wednesday that the tax office will monitor the ‘tax gap’ existing between what the ATO estimates should be paid in tax and what is actually paid in tax.

Areas of interest will include the temporary full expensing and loss-carry back measures which were extended for 12 months as part of the May 11 federal budget.

The temporary full-expensing measure allows businesses with up to $5 billion in aggregated annual turnover or total income to immediately deduct the full cost of eligible depreciable assets of any value.

The temporary loss-carry back scheme allows incorporated businesses to utilise tax losses to offset previously taxed profits. It means when eligible companies lodge their 2022-23 tax return, they will be able to offset previously taxed profits from as far back as the 2018-19 income year to receive a tax rebate.

Jenkins said the tax office will not apply a “blanket approach” to tax collection this year because the country’s 4.3 million small businesses are recovering from from the economic effects of the pandemic at uneven rates.

“We’ve all heard of the dual-speed economy. In my view, in the current environment it’s more of a multi-speed economy. Some businesses are recovering well, and others continue to struggle. Some haven’t seen much change at all,” she said.

“I need to call this out because this is why a blanket approach to anything is not appropriate and why we need business and their advisors to engage with us directly to tell us their story.”

The tax office will focus its compliance for small businesses claims this end of financial year on:

• using third party data like the Taxable Payments Annual Report data to ensure that income from contract work is declared in tax returns;
• monitoring loss claims, particularly for first time loss makers, and monitoring loss carry back and temporary full expensing measure claims; and
• monitoring small businesses to ensure they are making appropriate distinctions between private and business activities.

“We continue to focus on shadow economy behaviours, like deliberately not declaring income, operating outside the system and not complying with payment and lodgment obligations,” Jenkins said.