Tax Office reveals its small business hit list

The Australian Tax Office has outlined the SME behaviour that raises a tax red flag, with overseas deals and large one-off transactions high on the list.

In a guide for SMEs launched yesterday, the ATO outlined how it identifies compliance risks by matching and analysing data and information.

The triggers for the Tax Office include tax performance varying substantially from business performances, a lifestyle not supported by after-tax income, treating private assets as business assets and large, one-off or unusual transactions.

The Tax Office says it is also likely to be alerted by poor governance and risk management systems and will look closer at any weaknesses in compliance structures and processes.

Taxation Commissioner Michael D’Ascenzo said this is the first time the ATO has published detailed information on its approach to managing tax compliance risks for SMEs.

“By publishing information on how we assess risk and what attracts our attention, we intend to provide more practical certainty for taxpayers,” D’Ascenzo said.

“It is also an example of how we are making the system fairer and more transparent.

“Through it we are sharing our compliance approach, and clarifying what the community can expect from us and what we expect of business taxpayers.”

Mark Molesworth, partner at accountancy firm BDO, told SmartCompany the ATO’s guide was indicative of the Tax Office’s new risk approach.

“This sort of information has always been available through the commissioner’s annual compliance plan but the tax office has made a conscious effort to really communicate that to each of its market segments,” he says

“This year we have seen in the SME segment a focus by the tax office on focusing on the risk issues.”

Molesworth says the ATO appears to have more of an emphasis in the SME segment on good corporate governance and tax risk management processes.

“That’s an approach we see applied to the tax segment generally, so it is certainly making it explicit that the tax office expects all taxpayers to take an interest in their tax affairs and understand the tax positions they are taking and whether those tax positions are risky,” he says.

“The tax office is taking a two-pronged approach to compliance at the moment. They are certainly communicating about where they think risks are and they are also undertaking a number of reviews at the moment.”

Molesworth says there is “a lot” of ATO activity in the audit area at the moment.

“The ATO’s active compliance is certainly active and you can understand that from the need to ensure they collect the right amount of revenue.”

The triggers listed by the ATO are:

  • Tax performance varying substantially from business performance
  • Inconsistencies in activity statements or spikes in refund claims
  • Large, one-off or unusual transactions
  • Tax and economic performance varying significantly from similar businesses in the same industry
  • Unexplained losses
  • A history of aggressive tax planning by individuals or their advisers
  • Weaknesses in compliance structures, processes and approaches
  • Tax outcomes inconsistent with the intent of tax law
  • Lifestyle not supported by after-tax income
  • Treating private assets as business assets
  • Accessing business assets for tax-free private use
  • Not disclosing offshore dealings with overseas entities, especially low-tax jurisdictions and tax havens that allow banking secrecy
  • Using complex structures and intra-group transactions to minimise tax
  • Transactions where the tax and economic outcomes are inconsistent
  • Poor governance and risk-management systems
  • Distortions and inconsistencies in market valuations and apportionments
  • Business performance falling outside small business benchmarks (for businesses with turnover of up to $15 million)


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