Tax Office Compliance Program 2008/09 – what it means for micro-enterprises and small businesses

Micro-enterprises

• Assisting small businesses to stay on track with their tax obligations – the Tax Office has stated that its support and verification compliance activities will be structured around the business life cycle of a small business. It will be improving its assistance program to support micro enterprises at critical points in their business life cycle, with a particular emphasis on helping businesses get started and get back on track with their tax obligations, which includes meeting obligations in relation to cash transaction, and tax and superannuation debt.
  
• Employer obligations, including superannuation guarantee — the Tax Office is increasing its audit coverage of employers. In particular, the Tax Office will focus on: businesses that are expected to have high tax liabilities (based on their history or third-party information); businesses that fail to lodge on time or only meet part of their lodgment obligations; and business operators with child support obligations.
  
• Cash economy — the Tax Office is expanding its coverage with a more focused cash economy strategy that includes regional activities, business-to-consumer transactions and micro enterprises with conspicuous consumption or multiple obligations. Further, the Tax Office has said it will continue to use data-matching to detect unreported income and will also check for inconsistencies between household and personal assets and reported levels of income.
  
• International dealings — the Tax Office will focus on offshore income including dividends and interest, royalties and rental income. The Tax Office plans to match data on dividends, interest and royalties supplied by overseas revenue agencies with income tax return and AUSTRAC information to identify unreported foreign income.
  
• Capital gains on sales of assets and investments — the Tax Office will focus on capital gains arising from the sale of real property and shares, the accuracy of capital losses reported and the correct application of the small business CGT concessions. It will also focus on ensuring that any capital gains tax is correctly reported when a business operator is exiting a business. Further, it will continue to ensure that any capital gains arising from an in-specie contribution to a superannuation fund, or where proceeds from the sale of assets have been transferred into the fund are reported.
  
• Tax debt management — the Tax Office will use risk profiling to detect problems much earlier so it can identify the problem and offer assistance at an earlier stage.
  
• Refund fraud — unusual and high value GST and income tax refund claims will become a focus for the Tax Office who has stated that it will undertake pre and post-issue verification checks by either telephone, visiting the business or by contacting third parties.
  
• Small business owners and superannuation funds — the Tax Office is developing new tools for trustees and auditors to help them achieve high levels of compliance with superannuation and tax laws.
  
• Partnership and trust distributions — the Tax Office said it is reviewing distributions from partnerships and trusts and beneficiary returns to check that the distributions have been correctly disclosed.
  
• GST and property transaction — the GST treatment of property transactions remains a significant compliance issue. The Tax Office said it will continue to work with builders and developers through industry consultative forums to improve its understanding of the industry, consider the impact of current economic conditions and keep them informed of law changes in a timely manner.
  
• Fuel tax credits measures — the Tax Office will embark on an education program to inform taxpayers of the expanded fuel tax credits measures which applied from 1 July 2008. This will be accompanied by work to build its own understanding of the industries and businesses new to fuel tax credit entitlements, so it can identify those that are outside of industry norms for claiming credits. The Tax Office has warned that firm action will be taken if deliberate non-compliance is identified.

Small to medium enterprises

• Loans to business owners — the Tax Office said its focus in 2008/09 will be on identifying and dealing with cases where businesses did not take advantage of the option to self-correct past loan or payment breaches (i.e. Division 7A). The Tax Office will also continue to monitor compliance with shareholder and associate loans and payments.
  
• Highly wealthy individuals — the Tax Office will increase its focus on highly wealthy individuals and follow up where necessary by reviews and audits. The Tax Office reported that it had 400 reviews of wealthy people in progress as at 30 June 2008 compared with 38 at 1 July 2006. The Tax Office also expects to have at least 110 audits underway in 2008/09. In addition to undertaking more reviews and audits, the taskforce is developing a more sophisticated risk-assessment approach.
  
• Tax planning around business exits — the Tax Office will be undertaking more targeted compliance activity by examining business restructures where the primary objective is to receive a tax advantage through the use of demergers, consolidation or trust cloning rather than for preparing a business for sale.
  
• International transactions — the Tax Office will examine transactions between related Australian and offshore entities that shift profits from Australia to other countries. It will also examine whether Australian residents are declaring capital gains from overseas assets and reporting their foreign income. The Tax Office has said that it will undertake reviews and audits in high-risk cases.
  
• Trusts issues — the Tax Office will seek judicial clarification of a number of trust issues including the effectiveness of clauses in trust deeds that seek to equate trust income with trust taxable income. It said some clarification might also be provided by the outcome of the appeal to the Federal Court from the recent Tribunal decision in AAT Case [2008] AATA 322, Re Bamford & Ors and FCT. While awaiting clarification, the Tax Office said it does not propose conducting active compliance activities specifically in relation to these issues. The Tax Office will seek to identify cases of trust cloning involving the permanent deferral of tax, such as where there is a claimed increase in the cost base of the transferred asset.
  
• Fuel tax credits measures — the compliance activities to be undertaken are similar to that of micro enterprises.