Australian Taxation Office (ATO) Commissioner Chris Jordan has signaled five key target areas of small business owner tax compliance while assuring the tax agent community the ATO will strengthen its IT services and ensure systems stability in the years ahead.
Speaking at the Institute of Public Accountant’s (IPA) National Congress last week, Jordan told the audience of accountants that systems outages over the past year had “caused us to defer the program of work we had been pursuing to improve our services to you”.
He asserted that now the rush of 2017 tax time was over, the ATO was once again focused on service improvements across nine areas, the first of which is ensuring the tax agent and business activity statement system portals remain stable throughout the year.
This pledge to ensure streamlined systems was accompanied by two key warnings to tax agents and small business owners across the country.
In discussing the ATO’s work on stamping out revenue lost through the so called “black economy”, Jordan said some tax agents were not going as far as they could to ensure the claims their clients were making for tax deductions were genuine.
“We see some agents neglecting to check that their client has actually spent the money on the required item and that it was directly related to earning their income; and some claiming for personal (not work-related) expenses through carelessness, miscalculations and mistakes,” Jordan said.
While small claims may not seem like a big problem when taken on a case-by-case basis, Jordan warned tax agents that together, incorrect claims made by individuals contributed to a “tax gap” of more than $2.5 billion annually.
The ATO was also seeing “opportunistic” claims from small businesses, Jordan said, warning that carelessness was resulting in small businesses making claims to reduce tax that were not acceptable.
He foreshadowed the release of details regarding the “small business tax gap”, telling the audience there were five areas the ATO would be targeting to ensure small business owners and individuals fulfilled their correct tax obligations.
Jordan said monitoring the lifestyles of small business owners was a top priority, with the tax office targeting “unexplained wealth or lifestyle for individuals and small businesses”.
Earlier this year, the ATO announced it would be using social media platforms like Facebook to monitor for displays of wealth from individuals that did not match up with what they had reported about their income and affairs.
In his speech last week, Jordan said other areas the tax office was looking to target included possible undeclared income from business owners and individuals, instances of unpaid superannuation, the operations of cash-only businesses and private expenses that had been incorrectly claimed.
When contacted by SmartCompany this morning, the tax office did not reveal when small business tax gap information would be unveiled, but said it was “satisfied” the estimates would be “reliable and credible”.
Founder of Healthy Business Finances Stacey Price tells SmartCompany these focuses are unsurprising, given many business owners continue to make tax deduction claims for spending that is not entirely linked to their businesses.
“We heard of one case just this week, which was about overseas travel,” she says.
“A business owner had taken a spouse and a child on an overseas business trip, but the spouse and child weren’t working on the business. The business point of the trip was only for a few days of it… but people still pay for all of trips like this solely from the business bank account.”
Think about the bank account you’re choosing
Price highlights that the above case wasn’t solely a business expense, but that small business owners often still believe they can run expenses like travel through their business bank accounts, despite the fact that the expense is not entirely for the business.
The personal portion of any expenses should be paid for from a personal bank account, but Price warns that many businesses take the easiest route and pay for things like travel in one go and from the one account. They can then forget when it comes to tax time the next year that they shouldn’t be claiming that entire amount as a business expense.
“If a business owner is not speaking to their accountant about these transactions at the time, it’s very hard when it gets to June 30 to remember exactly what happened nine months ago,” she says.
Price warns the tax office is vigilant around both travel claims and phone and internet deductions from business owners, reminding taxpayers they cannot claim 100% of a phone plan as a business expense if they also use that device for personal purposes.
She reflects it’s probably impossible to know how the tax office is currently using social media to track the “lifestyles” of business owners, but given how so many people list their businesses on their personal accounts, it is not hard for government departments to track your movements online.
“I think people put things on social media all the time and forget it’s public knowledge, but it is,” she says.