Keeping on the ATO's good side this EOFY

The Australian Taxation Office (ATO) has again put small businesses on notice that they’ll be paying special attention to work-related deductions. It’s essential for accountants to know what their clients can rightfully claim. Getting it wrong, either by accident or in an attempt to claim more than the business is entitled to, can open you up to being audited and, potentially, prosecuted.

In the 2016-17 financial year, the ATO changed its threshold for small businesses from an annual turnover of $2 million to an annual turnover of $10 million. This means many more businesses fall under the SME banner, making them potentially eligible for more tax deductions but also putting them directly in the ATO’s sights.

This means accountants should work closely with clients throughout the year, not just at tax time, to provide the right advice based on a thorough understanding of the business and its issues and opportunities.

That understanding is more important than ever now that the ATO is using data analytics to sniff out cases of tax fraud. These systems can identify unusual claims or discrepancies in returns, and red flag certain businesses for further investigation.

Too often, a business isn’t even aware that there is an issue until it receives an audit notification. This can create significant stress for the business owners and can also put a strain on their relationship with their accountant.

Accountants should encourage clients to use the end of the financial year as an opportunity to review the business. Advice doesn’t have to be limited to tax: good accountants will help businesses identify and set their strategic goals for the next financial year so that they hit the ground running, as well as mapping out a path towards achieving those goals.

When it comes to avoiding trouble at tax time this year, there are four key things accountants should recommend to their clients:

1. Get a tax health check. Accountants should perform a tax health check (or use a tax expert do this) to confirm their clients are compliant with all relevant taxation requirements and legislation, as well as identify the best tax minimisation strategies for the client. It’s crucial to balance the business’ need to minimise tax with the risk of being audited or potentially facing prosecution.

2. Review the company structure. Some company structures are set up in the early days of the business and then never reviewed again, even though the company’s circumstances may change. In other cases, company structures are set up for other reasons such as to streamline succession or estate planning or provide an income stream for family members. As business structures are taxed differently, it’s essential to review the structure to ensure it still reflects the current and future needs of the business and to ensure it’s optimised for tax purposes.

3. Determine the circumstances of claims. Before accepting clients’ tax deduction claims at face value, it’s important to verify them and to ensure they are being claimed correctly. Payroll tax, land tax, and fringe benefits tax are just three examples of areas that can be tricky.

4. Automate systems where possible. Accounting should no longer include a heavy burden of manual work. Clients should use cloud-based tools such as payroll and accounting systems that make it simple to get the numbers right. This can help minimise errors when it comes to claiming expenses, and it can make it easier for accountants to automatically apply tax policies as applicable.

Andrew Graham, director, business advisory, RSM Australia