Insights on Tax
Cash Economy - Are you in the ATO sights?
Its the start of a new financial year, and that means new attacks by the ATO.
The ATO are undertaking more checks and data-matching on those businesses which fail its benchmarking tests or which they suspect are operating in the "cash economy" and may not be reporting all their income.
They are doing this by looking at the business income and then whether in their opinion it is sufficient to support the family of the owners. A business that makes continuing cash flow losses will also be in the enquiry line, wondering if the business is in fact a business but also if the losses are because cash income is not reported.
In terms of a business having sufficient income to support a family, the ATO have a couple of versions of a personal living expenses worksheet on their website. These are part of what is used to determine what is a sufficient level of income. There is a concise version (http://www.ato.gov.au/download.asp?file=/content/downloads/BUS00195974n72960_01_11.pdf) and a comprehensive version (http://www.ato.gov.au/download.asp?file=/content/downloads/BUS00195965n72959_01_11.pdf).
If you think you may be in the ATO sights then use these to see what level of income the ATO will be looking for.
There are also cross-checks done are to see if purchases are being made which aren’t consistent with income (the old asset improvements test), and will include;
- Loan payments to banks and finance companies
- Vehicle purchases and registrations
- Boat purchases and registrations
- Property purchases
The upshot is that as a result of audits carried out, the average payable has been $40,000, a combination of income tax and GST.
If you get a call from the ATO making enquiries along these line, make sure you answer the questions or direct the call to Cliftons, as a failure to respond will lead to an audit.
Its imperative that you are fulfilling your obligations and know where you stand, particularly with;
- Bookkeeping and record-keeping requirements
- Reconciliations between till takings (z-totals) and banking
- Consequences of failure to report all income (penalties, fines, interest, additional tax, additional GST)
- Consistency of business income between prior and current years, and with reference to lifestyle
- Reference to the personal living expenses worksheets.
If you want further advice on the above points please do not hesitate to contact Clifton Accountants