Missing: $11.1 billion dollars from the Australian tax system.
If found, please return to the ATO.
Last month, the ATO released some interesting figures showing that small business is responsible for 12.5% percent of the total estimated “tax gap”. This accounts for $11.1 billion of missing tax revenue, and the ATO are on the hunt for it.
This means that the ATO team is rolling up their sleeves in readiness to visit almost 10,000 small businesses this financial year. If that makes you a little nervous, read on.
The small business “tax gap” and the missing $11 billion
Firstly, what do we mean by the term “tax gap”? The tax gap is an estimate of the difference between the amount of tax collected, and the amount of tax that should have been collected if everyone had been fully compliant with the law.
The “missing” $11.1 billion highlights that there are a range of tax compliance issues within the small business sector, and the ATO has already made it known that this is an area on which they plan to focus on moving forward - hence all the site visits.
Why does the small business tax shortfall exist?
Globally speaking, the small business community in Australia is doing pretty well compared with their overseas equivalents, which show gaps between 9% - 30%. Many of the tax mistakes made by small business are unintentional, and can be easily fixed.
Some of the reasons for the tax gap include:
- failing to declare all income
- not accounting for private use of business assets or funds
- not understanding tax obligations
To help combat these errors, the ATO has increased their visits to small business to monitor compliance, and to educate business operators about compliance expectations. They expect to be busy, with plans to visit 10,000 businesses this financial year.
What to do if the ATO turns up to your business
First of all - don’t panic! If the ATO turns up to your business, they may spot check how you are recording your sales, and will probably look over your records for the previous few days, to make sure that everything is above board and well maintained.
It’s likely they’ll also take a look at your payroll records, to make sure that all of your staff are “on the books” and that all of their superannuation entitlements are being provided for. If anything doesn’t look right, your business will be flagged for further review.
Tips for making your business ATO proof
With small business coming under the ATO microscope, it’s a good time to make sure that your business is “ATO proof”. Make sure that all of your tax reporting is up to date, and that your payroll records are also up to date and accurate.
Make sure that the systems you have in place to manage your business are set up correctly, and that you are able to explain how they work. You’ll also need to prove that your invoicing and receipts system works correctly, and is well maintained.
Reducing the tax gap = a fairer system for everyone
The ATO visits are in large part about reducing the black economy, which is estimated to account for 64% of the total small business tax gap. The crack down on non-compliant businesses makes the tax system fairer honest business operators, ensuring that all businesses are paying their fair share of revenue - and that’s good for the economy.
