As you would expect we like to know what is of interest to the taxman. Every year he seems to change track and has a favourite only to look elsewhere another year.
As many of you also know we recommend our clients take out Audit Insurance which cover fees in cases where the ATO decides to have a review or audit. The great thing about Audit Insurance is that they tell us, based on claims, what is taking the taxman’s fancy.
So, we thought you would like to know the top 6 taxes the ATO is concentrating on and letting you know what the chances are for an audit yourself:
- Employer Obligations
This is always very high on the ATO list of audits. Obligations cover BAS reporting of wages, PAYGW, superannuation and payroll taxes.
With STP the ATO has so much data they can tell immediately if an employer is not making payments of superannuation on time or if amounts need to be declared for payroll taxes.
Employees are also more aware of their rights, and we see are seeing increased audits from Fair Work.
- If your employees are covered by an Award, make sure you know exactly what the award says.
- Make sure you pay Superannuation by the due date. Late payment of Superannuation means a loss of a tax deduction, administration fees and interest.
- Income Taxes
A bit obvious as it accounts for the largest share of the tax intake. But within income taxes there are two specific things the ATO are looking at:
- Crypto currency holdings/ trading and;
- Work related expenses
If you have bought, sold or traded Crypto then the chances are the ATO know. The ATO have told us that taxpayers do not realise how complex Crypto is when it comes to tax and preparation of tax returns.
Many do not know that transferring crypto from one wallet to another is subject to capital gains tax. The rules are complex and if they are complex, the chances are tax returns will contain errors.
Work related expenses have been on the ATO radar for many years. Remember be reasonable and the ATO will leave you alone. Take advantage and the ATO will come knocking because they have statistics for all occupation types. So, if you are a sales rep they know what other sales reps are claiming as a deduction. If your claim is higher than expected, they will know.
- High Wealth
The ATO know that those who have wealth more than $50 million are likely to get into schemes that reduce their taxes. There is a specific team within the ATO that targets these taxpayers.
Simply put is you have wealth of $50M-$100M there is a chance you will get looked at.
- Payroll Taxes
The states have worked out that this could be a gravy train and because all states need money this is an easy one to go for.
The States are going deeper into the legislation and picking specific industries and targeting three specific areas:
- Grouping (with associated persons)
The legislation is written to capture all employees in groups – ie you cannot set up 2 companies and split you payroll amounts (the states will add up the payroll for both companies and if above the limit both companies will be subject to payroll taxes).
But parents, spouses, and siblings can be caught too. Spouses make sense. But parents and siblings may not. You could be in business and so could your sibling. You do not discuss each other’s business and you are not involved or know anything about their business activities.
But according to the states you should be grouped for payroll taxes and both of you need to pay payroll taxes. Yeah …. I agree it is not fair and is wrong. But since when were taxes fair?
The states are looking at contractors and judging them to be employees. They have gone after the financial services industries and the medical industry.
- Employees in other states
If you are in business in Queensland and pay payroll taxes in Qld as soon as you employee one person in another state you must register and pay payroll taxes in that state.
The states know this is not happening and based on data sharing from the ATO they now know about every employee.
- If you employ contractors review contracts to ensure they cannot be deemed as employees.
- Speak to your advisor to ensure you comply with all matters relating to payroll taxes
- BAS Audits
The ATO recently advised that GST fraud is approximately $700M to $900M a year and as a result they will be more reviews of BAS going forward.
If you have a refund on a BAS expect at the very least for to be delayed but large refunds are likely to be blocked until adequate explanations can be given to the ATO.
If you purchase property and re-claim GST there is a 100% chance your BAS will be blocked by the ATO and the BAS subject to an audit.
- If you are expecting a refund lodge your return and then get your advisor to talk to the ATO explaining why the refund is due.
- Don’t assume your refund will be paid on time. Make sure you plan your cashflow!
- Rental Properties
This has been on the ATO radar to a few years now
The ATO is concerned about:
- Incorrect rent declared on tax returns. Specifically rent charged to children, family, or friends. If discount rent is charged to them you need to ignore that for the tax return and replace it with the market rent that should be charged
- Interest claimed. You can only claim interest on the rental portion. Ie you can claim the loan interest for the amount you borrowed when you purchased the property but if you borrow more using the equity in the property and use it to buy a boat you cannot claim that part of the interest.
- Repairs and renewals. The ATO is aware that certain claims for repairs are not legitimate
- Capital repairs. Some repairs can be claimed in the year – repairing or replacing a sink in a bathroom for example. Some though need to be claimed over a period of years – such as a bathroom replacement – Make sure these are treated correctly.
We are seeing more and more tax audit and review activity. The ATO took a light and easy approach during Covid19 but all this did was balloon the debt that the ATO has, especially with small businesses. This means that the ATO needs to now rank up audit activity to maximise returns.
We advise all our clients to take Audit Insurance to ensure that you do not have to worry about the compliance cost of dealing with a review or audit. If you would like to discuss this, please call the WOW! Advisors team on 07 3161 9548 or email email@example.com.