ATO Compliance: Essential Tips for Small Businesses and SMSFs

As the Australian Taxation Office (ATO) continues to enhance its data matching programs, it’s vital for small businesses and SMSFs to stay informed. This article explores key areas to consider when preparing your tax returns, ensuring you stay on the right side of the law.

Data matching involves comparing information you’ve provided to the ATO with that held by a wide range of private and government organisations. Essentially, it gives the ATO extensive and ever more sophisticated means to automatically verify the story your tax return tells with data held by many of those you transact with.

Today there are some 26 different data matching programs covering a wealth of transactions including various insurances (health, landlord, income protection); electoral rolls, bank accounts and credit cards, real estate, online sales platforms, international travel and crypto assets. So, if you leave out income from your tax return or inflate deductions, your chances of getting caught are much higher.

We take a look at some of the key areas to be mindful of when preparing your tax return this year.

Navigating Tax Obligations for Investment Properties

The ATO says that, while 87 per cent of taxpayers who own rental properties use a registered tax agent to lodge their return, a review has found that nine in ten rental property owners are getting their returns wrong. It is crucial that you provide us the right information to prepare your return correctly because you are responsible for what you include in your tax return, even when using an agent.ⁱ

For example, the new landlord insurance data-matching program provides information about any insurance payouts that might have been made during the year. These must be reported as income.

Along with the new landlord insurance data matching program, a review of investment loan data will also get underway. We can guide you to ensure we are capturing all the relevant information to submit a complete tax return.

Side hustles

The ATO is actively investigating income generated from side hustles and the sharing economy.

It is now requiring platforms that provide taxi services and short-term accommodation, such as Uber and Airbnb, to report their data. All other electronic distribution platforms will have to begin reporting their data to the ATO from 1 July 2024.

The ATO says the data will give it a clear picture of the people earning income on the platforms and will be matched against their tax returns and activity statements.

Understanding Small Business Tax Obligations

Businesses are also under growing ATO scrutiny using a combination of sophisticated data matching and a requirement for further reporting.

The Single Touch Payroll (STP) program, first introduced five years ago, underwent some major changes last year, known as STP phase 2. Now, all businesses are required to use STP each time they pay their employees to report salaries, amounts withheld and superannuation guarantee liability information.

The ATO recommends you discuss your current payroll processes with your tax or payroll provider to make sure you are complying with Phase 2 reporting. “If you don’t have a tax or BAS agent, consider engaging one,” the ATO says.ⁱⁱ

And, in a move to ensure employees receive their super on time, the Federal Government will introduce what it calls ‘payday super’.

From 1 July 2024, all employers will be required to pay the superannuation guarantee amount to their workers’ super funds on each payday rather than quarterly as is currently the case.

Compliance for Self-Managed Super Funds

According to the ATO, self-managed superannuation funds generally demonstrate strong tax and regulatory performance.

Nonetheless it is a massive sector providing more than 1.1 million people with their retirement income. With an estimated total asset value of $868 billion, it is not far behind the industry funds sector, which holds just over $1 trillion in assets.

The SMSF sector’s importance and value to individuals brings it under close attention from the ATO, which is scaling up its compliance activities because it is seeing indicators of “heightened risk” that put retirement savings at risk or take unfair advantage of the favourable tax environment.ⁱⁱⁱ

In particular, the ATO is chasing down fraud and investment scams, illegal early access to super funds by members and failure to lodge annual SMSF returns.

As the ATO intensifies its focus on taxpayer and business compliance, we’re here to guide you through the evolving rules and regulations, answering any questions you may have.

Stay ahead of the game with our expert advice. Contact us today for personalised guidance on your tax obligations.

i https://www.ato.gov.au/Media-centre/Media-releases/ATO-expands-data-matching-to-ensure-fair-play/
ii https://www.ato.gov.au/Business/Single-Touch-Payroll/Expanding-Single-Touch-Payroll-(Phase-2)/Employer-STP-Phase-2-checklist/
iii https://www.ato.gov.au/Media-centre/Speeches/Other/SMSF-compliance—What-s-on-the-regulator-s-radar-/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.