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Will the ATO be knocking on your door soon?

Unannounced visitors might be a bit of an inconvenience so some, but for businesses there’s no guest less welcome than the Australian Taxation Office (ATO).

While the ATO tends to keep workplace visits to a minimum, and target those that they know are doing the wrong thing, new benchmarking data for small businesses means they are now cracking down on those that may be involved in avoiding tax and super by accepting ‘cash’ payments, which ultimately go unreported. In response to the ‘cash’ economy, the ATO have established a taskforce to go knocking on the doors of around 4000 businesses across Australia, possibly leading to audit activity.

To understand the scope of their efforts and what you can do to stay off the ATO’s list, here are the details.

What are the ATO looking for?

With the introduction of more comprehensive reporting and sophisticated data-mining capabilities, the ATO have increased their efforts to get tough on the ‘cash’ economy.

Publicly available benchmarking data and other sources are at the ATO’s disposal as well, and using data-mining technology they are able to more easily identify suspicious activity. In this exercise, they are looking for unexplained wealth in relation to small businesses, particularly where businesses appear to report income and profit that is vastly different to the average for their industry or business type (as it could indicate omitted income or other attempts to exploit the cash economy).

If business owners file returns with profit margins or expense details that are radically different from their competitors, this may be enough motivation for the ATO to take action and pay those businesses a visit. Ultimately, this can potentially lead to increased audit activity from the ATO where they find inconsistencies and significant anomalies within small businesses they visit.

Is your business at risk of an ATO visit?

The inconvenience of being audited should be plenty of incentive for business owners to ensure they are not on the ATO’s radar.

Make sure that your business is reporting all income and expenses in an appropriate manner, and that everything is accounted for properly. Small errors in bookkeeping or returns should be rectified as soon as possible, not only to reduce the chances of the ATO tracking you down, but also to avoid any potential penalties associated with such errors.

As the benchmarks for small business income and expenditure is all publicly available, it is also worthwhile having a look at that and comparing your business with other similar enterprises. If you seem to be under performing (or over performing) compared to your competitors, it’s important to understand why this is. You can find the benchmarking data here: A-Z or by Industry.

How can MP+ help?

  1. In the first instance, McKinley Plowman help you keep your accounting and bookkeeping (CFO2GO) up to date in your small business to reduce the chances of the ATO needing to investigate in the first place. This proactive step should always be top of mind – careful and considered accounting now can help reduce headaches down the line!
  2. We also offer audit insurance – a product that covers the fees associated with helping you, the client, navigate an audit situation – helping to alleviate financial stress and giving you full access to our assistance in that situation (should it arise at all).The peace of mind that comes with having those fees taken care of means we can work together to help the ATO with their enquiries and get the issue resolved as soon as possible.
  3. If there has been an omission or inadvertent error in reporting cash sales then it is an ideal time to be proactive and make a voluntary disclosure. This can protect you against significant penalties, which can accumulate to around $75,000 over a four-year period of undisclosed ‘cash’ sales of $1,000 per week (on top of a tax shortfall of $100,000). Once an audit commences, it is generally too late to make a disclosure and mitigate penalties.

Again, being proactive with your small business’ accounting is the first step to avoiding audit activity altogether. But even if something does go awry, McKinley Plowman are here to help. Give us a call today on 08 9301 2200 or contact us via our website at for a FREE initial consultation.

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