SMEs with revenue losses risk ATO audits

The Australian Taxation Office is contacting small businesses identified as targets in its campaign to clamp down on tax losses.


Last month, the ATO warned of a toughened stance towards tax losses, triggered by the massive losses booked by SMEs during the global financial crisis; carried-forward losses soared 30% in 2009 to $72 billion.


According to statistics released by the ATO, the construction industry was the worst offender, followed by finance, retail, manufacturing and transport.


As of next month, the ATO will kick off its “verification campaign”, notifying businesses with significant tax losses made or carried forward in 2008 or 2009 that they may face a questionnaire or audit.


To use a loss, tax rules essentially require that majority ownership has remained the same or the business has not changed.


Businesses that have experienced change – such as a negotiated lending arrangement, an equity injection or a restructure – could therefore be in breach and risk getting caught.


The ATO will also start a “pre-lodgment awareness campaign”, sending “guidance” to selected businesses with 2009 carried-forward losses.


A spokesperson for the ATO says as part of the campaigns, the agency will help SMEs to understand their obligations, and deal with non-compliance by reviewing and auditing higher risk cases.


The ATO is encouraging small businesses to check reported losses to ensure they are still eligible to use them, identifying some common mistakes:

  • Losses used where the company does not satisfy either the ‘continuity of ownership’ or ‘same business’ tests.
  • Losses incorrectly transferred to the head company of a consolidated group.
  • Losses incorrectly used due to incorrectly calculating the available fraction in a consolidated group.
  • Losses incorrectly used due to not making the required adjustments to the available fraction.
  • Records not accurately kept to support or reconcile the loss.
  • Losses that do not satisfy the ‘same business’ test and result in further losses carried forward.
  • Carried-forward losses not checked to ensure they are correctly calculated, including amendments to prior-year tax returns and losses cancelled.

The ATO has acted as a lender to small businesses in recent years by allowing the delayed payment of tax debts. But with the switch to collection mode, this option is no longer available.


The Tax Office is increasingly using garnishee orders against small businesses, which directs taxpayer funds from a bank to the ATO.


Scrutinising small businesses is a priority for the ATO as it tries to reclaim $15 billion in tax debt.


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