ATO Wrath : Money with Melanie

Avoid the ATO’s wrath: Who’s in the firing line?

The compliance program acts as a useful warning to business of the ATO’s focus for the year.

On its radar this year for individuals are:

  • incorrect or fraudulent refunds for over-claims and deliberate fraud
  • work-related expenses for occupations with high levels of claims
  • people getting caught up in tax avoidance schemes, and
  • omitted income, including dividends and interest, capital gains, and foreign source income

The ATO is especially focusing on plumbers, IT managers and defence force commissioned officers.

The ATO has its sights set firmly on the validity of individuals’ work-related expense claims this year.

If you are claiming work related expenses you need to make sure you have good tax advice and document accordingly.

The ATO is planning a “particular focus” on investments by medical practitioners and other higher income individuals – particularly widely-marketed financial products that promise substantial tax benefits.

The ATO’s focus for “micro enterprises” – turnover of less than $2 million

The ATO’s focus over the next year will be on:

  • unrecorded and unreported cash transactions
  • employer obligations
  • GST
  • tax and superannuation systems registrations
  • lodgement obligations, and
  • incorrect fuel tax credit claims

From July 1, the building industry report the payments made to contractors and they will be audited. Another measure the ATO is using is benchmarks and field audits.

The ATO is increasing its use of profit benchmarks to determine whether micro businesses are declaring income, focusing especially on cafes and plasterers.

One thing the ATO is doing this year is looking at raw material supplies and comparing them to the sales you make, so for a cafe they look at the amount of coffee you buy.

If you are a cafe, you are buying 90 kilos of coffee and you need to look at what that would equate to in sales and whether the profit margin is kosher compared to competitors. It shows the level of sophistication the ATO is using now.

The ATO’s focus for 2012 for SMEs – turnover of $2 million to $250 million

The ATO’s focus in the SME sector will be on:

  • participation of wealthy individuals in the tax and superannuation systems
  • the use of trusts to inappropriately minimise tax
  • Division 7A and the treatment of private company profits
  • capital gains
  • employer compliance with fringe benefits tax rules
  • the integrity of business systems for GST and excise obligations, and
  • GST and property transactions

To police this focus, the number of SME audits is set to rise, with the ATO planning to conduct 250 site visits to SMEs.

There are 200 fringe benefit tax reviews in the SME market and there will be 1,500 GST reviews and 100 audits mainly looking at one-off transactions or if you change your business structure in some way.

Trusts are a key area of concern for the ATO this year and the Tax Office will be linking the amount trustees are distributing to beneficiaries using tax file numbers.

The ATO is also expected to ensure that all trustees have complied with new requirements to complete a minute or audit by June 30, 2012, which sets out how trust income would be distributed through beneficiaries.

The ATO’s focus on Division 7A and the treatment of private company profits also ties in to its emphasis on trusts as the payments are often made to trusts.

The ATO plans to use data matching to collect debt, with a focus on the construction industry.

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