Small Business hit list – ATO to combat tax debt

Small Business hit list – ATO to combat tax debt
​An article which caught our eye last week by Accountants Daily reveals the intention of The Tax Office’s priorities in taxpayer compliance and enforcement.

In another attempt to tighten the tax gap and recoup collectable debt, the ATO has set its sights on small businesses.

The focus, according to Deputy Commissioner Will Day last week at IPA’s National Congress, will be on taxpayers who diverted business income for personal use, gamed deductions and concessions, and operated outside of the system.

Data released in August showed that small business unpaid tax debts grew to $35.6 billion in 2024. The tax gap for small business is 3 times larger than the tax gap for larger companies. To improve the system, attention will be focused on an ongoing campaign to improve transparency and help businesses “get it right from the start”.

Crackdown on Div 7A, Deductions, Shadow Economy

The ATO will be drawing their attention to areas of concern where small businesses are getting it wrong, being opportunistic or deliberately operating outside of the tax system (i.e. not registering for GST, not reporting correct business expenses, etc). The Tax Office will be engaging with accountants and tax agents to highlight problematic taxpayer clients and provide small businesses a chance to get their affairs in order.

• The focus for this quarter will be centred around Division 7A – business versus personal income. We have highlighted this area in the past however shareholders (or associates) are still failing to understand that a company is a separate legal entity and that owners are not entitled to company money and assets. Proper record keeping is more important than ever and emphasis on separating private expenses and company expenses is a must.
• Small businesses claiming non-commercial losses due to misunderstanding tax rules, or deliberately making claims for “contrived” losses is also on the radar and going to attract the attention of the ATO. Non-commercial losses of $4.5 million was claimed in tax return during 2022-2023 by taxpayers.
• Ride-share operators (Uber, Didi, etc) are failing to register for GST and therefore operating outside of the tax system. These ‘shadow economy’ operators are set to be the “immediate” focus and can expect to be contacted by the ATO from February next year where the ATO’s data matching system detects records of non-compliance.

As frustrating as it can be, running a small business (a business that has an aggregated turnover of under $10 million) can be very challenging and complicated.

If you don’t have your ‘back office’ in order, then you have every chance of your ‘front office’ being closed and out of business.

If you have any questions about any of the above, give us a call on 03 8805 8000.