The ATO says it will target 90,000 small businesses over the next 3 months, for 'failing to comply with tax obligations'.

A few ways to ensure you're a target!

1. Be in a cash industry , such as cafes/coffee shops, hairdressers, and the trades.  The ATO has benchmarks for many businesses (on the ATO website), and if your tax return is outside the range, the risk of audit is high.  We always check to the benchmarks and will tell you if there is a concern.

2. Lodge a BAS with a significant refund due.  It could be right, perhaps you have purchased equipment.  The ATO will ask for the GST Detail report, select several invoices, and check invoices to the bank statements for payment.

3. Capital Gains are a common review area, especially where you have been able to utilise the small business or main residence concessions.  CGT is rarely 'yes' or 'no', there are many conditions that must be met, and that is why we require extensive information.

4. Transfers to and from other countries, even if they are not tax havens.  Austrac monitors all transfers and provides information to the ATO.  Make sure you have the documentation to support overseas transactions, and pricing if you sell overseas to associates (non arms-length).

5. Excessive rental property deductions are a special area of interest.  The ATO is looking at costs of purchase of a property (not deductible), repairs (could be capital), interest not related to the property (say a line of credit), depreciation claims (need a quantity surveyor report), and sharing of income (must be in line with ownership).

6. Random selection.  It will usually be something, like the above, that brought you to notice, but it could be overdue returns, or ATO investigation of evasion of someone else and you do business with them regularly, unpaid employee superannuation, use of sub-contractors in certain industries, ownership of a luxury vehicle but not the reported income to support such a vehicle, and just being dobbed-in.

Ensure you keep all receipts, dockets, invoices, diaries, and bank statements.  Make sure your accounting records are properly kept (this will also save you money at tax time – see our previous Blogs on 31 July, 25 August, 1 September and 8 September).

The ATO has extensive information gathering powers and software that analyses if something is 'not right'.  Even if you are doing the right thing you may still be subject to scrutiny.  So, be prepared, keep accurate records, and call us if you're unsure about a claim or you have received a call from the ATO.  And a warning, calls from the ATO asking for payment, your bank or other details are quite often a scam!  Check with us and we'll check with the ATO.

If you get a call advising a 'review' tell us quickly, the matter can often be resolved without amendment and if an error has been made, making an early disclosure can substantially reduce penalties that can be applied.   The cost of audits can sometimes be quite high, so we have sought audit insurance for our clients (a few hundred dollars can be money well spent), and will have an offer out to our clients soon