New ATO Regulations for Small Businesses
by Ian Morella, Director of Accounting
ATO’s Benchmarking and the Cash Economy
The Australian Taxation Office (ATO) has recently introduced a new benchmarking process for small business owners.
The process will effectively make small business owners more accountable than ever, as the detail and quality of their record keeping gets put under the spotlight.
The message from the ATO to small business owners is clear: if you keep demonstrably accurate accounting records, then you should have nothing to worry about.
How does the Benchmarking Work?
Small Business benchmarks are designed to assist companies in meeting their tax obligations by enabling them to compare their performance against other similar businesses.
The ATO has designed this system so you can review other businesses in your industry and therefore assess your own business performance. There are over 100 industry reports available to view, which the ATO has benchmarked to make it clear what they expect from small businesses in each particular industry.
The Repercussions
If you fail to keep appropriate records, the onus will be on you to prove the ATO wrong if you are audited. This task will not be easy if you record keeping is not up to speed to begin with.
Inconsistencies in your record keeping may attract the ATO’s attention. Whilst there may be sound reason behind your discrepancies, it may also indicate cash transactions or similar questionable activities.
The ATO has advised that in dealing with the cash economy, it is not their intention to issue arbitrary default assessments. The ATO is committed to ensuring there is a process in place in respect to the benchmarking audits.
The ATO Benchmarking Process
• A letter is sent to the taxpayer with a copy sent to the tax agent, advising that the taxpayer’s business is outside the benchmarks for their industry
• Where necessary, the clients records are requested and reviewed
• Where the records are found to be acceptable, in the ATO’s words “no further action” will be required
• Where the records are found to be inadequate, the taxpayer is advised that unless there are further records supporting the variation from the benchmark or other compelling reasons, the ATO will have to apply the benchmark
• The tax payer will be given 14 days to respond
• If there is no response or if the response is inadequate, a default assessment will be issued applying the benchmarks
This new process creates a much more thorough record keeping system for small business owners.
The ATO has every intention of ensuring taxpayers who report figures which aren’t in line with their industry benchmarks will be investigated accordingly.
To ensure you are complying with all the ATO’s regulations and policies, be sure you pay particular attention to your record keeping books, otherwise you may find yourself in some hot water.
As always, it’s best to speak to your Financial Adviser or Taxation Accountant to get a full understanding of all your obligations as a taxpayer, so be sure to book an appointment if you require more information.
To arrange an appointment with a John Hopkins Taxation Accountant or Financial Adviser, please contact our Client Liaison Officer on 1300 726 082 or click here.