The Australian Taxation Office (ATO) has shifted its focus to tackling the rising tax debt among small businesses, which now represents a significant portion of the nation’s overall unpaid taxes. As of August 2024, small businesses account for nearly two-thirds of the total $54 billion in tax debt, creating a pressing need for action.
Key Areas Under Scrutiny
The ATO has highlighted specific areas where small businesses are at risk of non-compliance, aiming to address both intentional and unintentional breaches. Here are the main points of concern:
1. Misuse of Business Income
One recurring issue is the mismanagement of business income. When funds intended for business purposes are redirected for personal use without proper documentation or justification, it creates a compliance gap that the ATO is keen to close.
2. Incorrect Deduction Claims
Overclaiming deductions or improperly applying small business tax concessions are common pitfalls. This includes errors related to non-commercial losses and misuse of capital gains tax concessions, which the ATO has identified as high-risk areas.
3. Shadow Economy Activities
The so-called “shadow economy” — where income goes unreported or business activities remain outside the tax system — continues to be a challenge. The ATO is particularly focused on businesses and individuals who evade GST obligations, such as some ride-share service providers.
Compliance with Division 7A
Division 7A of the Income Tax Assessment Act 1936 requires careful attention, especially for shareholders or associates using company funds for personal expenses. Failing to adhere to these rules, such as by not documenting loans appropriately, remains a common source of non-compliance.
Non-Commercial Losses Under the Microscope
The ATO is scrutinising claims for non-commercial losses to ensure they meet the required standards. With significant sums reported in this area, the ATO is working to identify and rectify improper claims to safeguard the integrity of the tax system.
A Clear Stance on Tax Compliance
The ATO has made its position clear: it prefers businesses to voluntarily meet their tax obligations. Through education and transparent guidance, it aims to support small businesses in getting it right. However, stronger measures, including penalties and legal action, will follow for those who disregard these obligations.
Simplifying Compliance for Small Businesses
Tax compliance is a complex landscape, and even well-meaning businesses can find themselves at odds with the rules. If you’re uncertain about your tax obligations or want to ensure your business is fully compliant, Walker Hill is here to help.
Our expert team can guide you through the process, providing clarity and actionable solutions tailored to your needs. Contact us today at support@walkerhill.com.au to learn more about how we can assist you in managing your tax responsibilities effectively.
