The tax office says it will be focused on addressing a range of common issues with small-business tax returns this year, including ensuring small businesses make the right distinction between private and business activities.
This end of financial year, the Australian Taxation Office (ATO) told SmartCompany it will be monitoring three key compliance areas as well as the common errors small businesses make.
The compliance focus areas for small businesses going into this tax time are:
- Using third party data like the Taxable Payments Annual Report data, to ensure that more than $390 billion of income from contract work is declared in tax returns;
- Monitoring loss claims, particularly for first time loss makers, and closely 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 and accounting for these accordingly.
An ATO spokesperson said businesses also need to make sure that JobKeeper and JobMaker Hiring Credits amounts are included as income in the tax return.
“We continue to focus on shadow economy behaviours, like deliberately not declaring income, operating outside the system and not complying with payment and lodgement obligations,” they said.
However, the spokesperson added that due to the effects of the COVID-19 pandemic on businesses, the ATO will be empathetic when assessing legitimate tax mistakes.
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“We want to reassure the community that we will be empathetic to, and understanding, of legitimate mistakes where good faith efforts have been made. However, we will apply penalties against those deliberately trying to get away with doing the wrong thing,” they said.
Common tax mistakes
The three most common errors small businesses make when completing their tax returns are failing to:
- Declare all income;
- Account for private use of business funds or assets; and
- Keep all required records or have adequate record keeping systems.
Businesses can claim a tax deduction for most expenses from carrying on their business, as long as they are directly related to earning their assessable income.
Businesses can also claim a deduction for most of the costs of running your business, including home-based business expenses, motor vehicle expenses and travel expenses. Additionally, businesses can claim deductions for expenses related to protecting your customers and workers from COVID-19.
The most common non-deductible expenses that businesses try to claim deductions on are entertainment expenses, traffic fines and private or domestic expenses, such as childcare fees or clothes for your family.
For more tax tips for small and medium businesses, take a look at this SmartCompany Plus guide on managing super, stocktakes and insurance this end of financial year.