Many small businesses are still struggling with GST issues, but there are a few simple steps to avoid having the taxman call. By Terry Hayes
By Terry Hayes, of Thomson Legal & Regulatory
GST objections and litigation is on the rise. Although the system has been in effect for more than six years there are still plenty of GST issues that businesses struggle with and which come in for scrutiny from the tax office.
The tax office has flagged several GST problem areas for SMEs. These include:
- Public share floats.
- Real property transactions that have not been properly reported.
- Incorrect calculation of GST owed.
- Over-claiming GST credits.
These areas are not new and businesses need to be particularly careful that they obtain accurate advice about them. If in doubt, ask your accountant, or an audit by the Australian Taxation Office (ATO) might bring you undone.
For micro businesses (those with annual turnover below $2 million), the ATO says GST problem areas include:
Poor record keeping by a “significant number” of these business. This is an recurring problem identified by the ATO, so businesses simply must get their records in order. It makes good business sense anyway, and can double up in helping greatly with tax compliance.
Cash economy activities. Paying in cash may seem an easy way to get a good price, but the GST system is designed to make paying in cash more difficult, and businesses need to be aware that the tax office focuses heavily on cash transactions. Don’t be in any doubt: the ATO continually looks at the cash economy using data-matching and data-sharing with other government agencies. For instance, it is using auction house data to identify and follow-up roadside motor vehicle sellers, matching appointment and quote books to invoices for consumer transactions, and matching information from trade suppliers to businesses. In another example, it checked sales turnover figures for retail stores that were provided by shopping centres to see if they matched their declared income.
Late lodgment (or non-lodgment) of the BAS/return, or the payment of GST. Seems obvious, but the ATO says micro businesses have a problem with this. The tax commissioner says businesses that can expect to hear from the ATO include those in tax, law, sports promotion, arts and entertainment and those in industries where international, cash or criminal dealings are common. However, the taxman is not unsympathetic: if a business can see it will have a problem lodging a BAS or paying its GST, the simple thing to do is contact the ATO early. They do listen.
There are about 2.5 million micro businesses in Australia, so the GST problem areas identified by the ATO should not be taken lightly.
GST refunds are also closely watched by the ATO, so it pays for a business to make sure it has correctly calculated its GST refund. The ATO plans to check 55,000 GST refunds during 2006-07. It will be paying particular attention to:
- Large or incongruous refunds. There may well be a completely justified reason for a large refund but bear in mind that the ATO will review such refunds to make sure they are correct.
- New businesses and first refund claims. This is an obvious situation where refunds can go wrong, so businesses in this situation need to make sure they get it right.
- Taxpayers claiming refunds outside their normal patterns. Data collected by the ATO helps it establish tax (including GST) patterns for all sorts of businesses and industries, so when a GST refund is outside the norm for a particular industry it wants to know why.
- Taxpayers claiming small refunds on a regular basis. It might seem innocuous enough, but patterns like this will attract ATO’s attention.
The tax office has clearly flagged what it sees as the GST refund problem areas, so businesses need to be prepared.
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Terry Hayes is a senior tax writer at Thomson Legal and Regulatory Australia, a leading provider of tax, accounting and legal information solutions. Terry is responsible for Australia’s most comprehensive and well-respected tax news services, Latest Tax News and Weekly Tax Bulletin.