Home' Border Enterprise : Autumn-Winter 2011 Contents enterprise
Vol 4. Autumn/Winter
SMALL business owners that have taken
more than a mild interest in their tax
returns will have noticed how much
financial information the Australian
Taxation Office collects.
This information is used to produce financial
benchmarks for the various industries. These
benchmarks will now be used to not only detect
businesses that mainly deal in cash and are
trying to cheat the taxman, but also for working
out how much tax has been avoided.
The first indication that a business is being
targeted by the tax office is in the form of a
letter sent to the business owner and their tax
agent. It states that the business results were
outside the benchmark for their industry and,
depending on how much the results differ from
the benchmark, the tax offce can request the
accounting records of the business so they can
Where the records produced are inadequate,
the business owner is advised that unless they
can provide an explanation supported by facts
or other records that explain how the results
differ from the benchmark, the variation from the
benchmark will be applied in calculating what the
results for the business should have been.
The business owner is then given 14 days
to respond and, if there is no response or it
is inadequate, a default assessment is issued
applying the benchmarks to calculate how much
tax has been avoided.
By contrast, if the records provided by the
business owner are found to be acceptable, and
therefore adequately explain and or prove why the
business results differ from the benchmark, the tax
office will more than likely take no further action.
This means that if you operate a business that
deals mainly in cash, and don't want to be at
the mercy of the tax office telling you what your
results should have been and end up with a
large tax bill, it is vitally important that adequate
records be kept that can support the information
supplied in your tax return.
The records required will include both
income and expenses. From an expense point
of view this would include either manual or
computer records that produce the totals for
each expense. In addition you must be able to
produce the invoices related to each expense
This means that to avoid a panicked search
through piles of receipts, a filing system should
be used that is either in date or cheque number
order, or they are filed in supplier batches in date
order, thus making it easy to match the invoice
with the payment record.
When it comes to income it is not sufficient
to rely on bank deposit records alone. There
should be additional records kept that back up
what has been deposited. This could take the
form of daily cash register printouts that show
the income earned each day, that are reconciled
with what is banked, and filed in date order. It
is not necessary to keep the complete cash
register tape for the day but just the printout that
shows the totals.
If you don't have a cash register, a manual
system can be used that lists the daily sales and
produces a total that reconciles with what has
been banked. This reconciled total should be
made up of your total sales, less any expenses
paid during the day.
The penalty for not keeping adequate
records will be, as a result of receiving an ATO
benchmarking audit letter, an assessment
demanding tax for a business profit you
cannot challenge. In addition to the income tax
penalties will also be imposed for understating
your taxable income.
Questions on small business tax or other issues
can be emailed to email@example.com
Tax for small business, a survival guide, by
Max Newnham is available in book stores.
Links Archive Spring Summer 2010-2011 Summer-Autumn 2011-2012 Navigation Previous Page Next Page