Owning a small business can be overwhelming with time spent managing the business behind the scenes and remaining present for your employees and customers. At the end of the day, you don’t want to think about things like the ATO. You’d rather be relaxing at home with your feet up watching the final season of Game of Thrones.
As bookkeepers, we work closely with our clients on ATO compliance. We’ve put together a quick read for you about the ATO and small business. Staying informed gives you the power to leave work at work and not stress about your business, tax and compliance obligations.
Do Backpackers Get Super?
As a small business owner, there is a high chance that you currently employ or have employed backpackers. Love them, hate them or anything in between, they are a significant part of Australia’s seasonal workforce. Backpackers are classified as temporary residents.
Do you know how to properly treat them?
Let’s investigate their rights.
As temporary residents, if they earn more than $450 (before tax) a month, backpackers are entitled to a superannuation guarantee. This means that they can claim super like every other Australian and can even take advantage and access it before we can. They can file for a Departing Superannuation Payment (DASP) when they have left or are coming to the end of their time in the country and will be approved if they meet all the relevant requirements.
So yes, backpackers do earn a Super. Not only can they live and work like every other Australian, but they also have some peace of mind knowing that when they return home, they will have some financial stability and won’t be completely vulnerable.
The question now is whether you are treating your employees accordingly and if not, what can be done to make sure you are. We have compiled some easy tips you can take on board to make sure your business is taking that extra step to not only perform ethically but also be a leader against your competitors and most importantly be respected by your employees.
- Check: are your employees holding a valid visa? Use the Visa Entitlement Verification Online (VEVO) service to see.
- Determine: use the Super Guarantee Eligibility tool provided by the ATO to identify if your employees are eligible for super.
- Recommend: employees should seek independent advice about choosing a Superfund that best suits them. This will ensure that they are getting the best return.
- Advise: tell your employees about the DASP application and how it can be submitted while they’re still in the country.
It doesn’t hurt to get extra advice about your employee’s rights and Superannuation in general. The ATO provides webinars regarding Super Obligations to empower business owners with the correct information. Register for one here.
After all, the relationship you hold with your employees is the most important part of your business. It doesn’t hurt to do things the right way. It is so easy to make yourself their favourite employer from their holiday.
The Small Business Tax Gap
Recently, the ATO has received more funding towards addressing the multi-billion-dollar small business tax gap. ATO commissioner Chris Jordan states that there is around $10 billion in outstanding small business tax, $6 billion of this is believed to be from a deliberate activity from the black economy. With this new funding comes a bigger spotlight on small businesses, let’s investigate what this means for your business.
Who they’ll be targeting?
The ATO has stated that they’ll be paying closer attention to cash only businesses. If this is your business model, you should expect some physical in-store check-ins from the ATO to observe how you operate your business.
There will be stronger use of data analytics that will help identify any discrepancies such as the lifestyle of a business owner compared to their income suggests or failure to account for the private use of business funds or assets.
What they’ll be looking for
Let’s investigate what the ATO will be paying attention to regarding small businesses and their business practices:
- Employer’s not paying Super
- Dishonest businesses that seek unfair advantages, keep a record or hide income
- Failing to launch activity statements or income tax returns regularly
- Reporting of sales that are incorrect or under reporting
- Business reporting information that is different from the benchmarks for their industry
- Lifestyle indicators that don’t quite add up to their income
To ensure you are taking the steps necessary to protect your business, you can read more and see the full list of what the ATO will be keeping an eye out for here.
Tax Avoidance Taskforce and the Black Economy
The black economy includes any dishonest or criminal activities from businesses or business owners that manipulate the rules of the tax system. The government has identified tax avoidance as an area in the budget that needs to be addressed to ensure there is an equal level of fairness for all businesses in today’s harsh environment.
These illegal activities can occur outside of the system or involve any misuse or abuse of it. Some common examples of activities from the black economy according to the ATO include:
- Demanding/paying for work through cash in hand to avoid any obligations
- Not declaring all income made
- Over-reporting any deductions
- Other illegal activities, such as illicit tobacco, sham contracting and ABN fraud.
ATO’s Tax Recovery System
The ATO says they won’t act unless it is an extreme case with “exceptional circumstances with evidence of fraud, criminality, serious tax evasion or dissipation of assets to defeat the collection of tax.”
As small businesses’, it’s important to not feel offended that they’re going to be cracking down on this, after all, it is their legislative responsibility to investigate any unpaid taxes. Around two-thirds of the nation’s outstanding taxes come from small businesses.
Plus, if you are operating within the system then you have nothing to worry about and it’ll just ensure there is no cheating going on, so it is a level playing field.
However, if circumstances persist indicating there have been unethical business practices, the ATO may opt to serve something called a Garnishee Notice, a Director Penalty Notice or an SGC. Right now, we’ll just focus on a garnishee notice.
A Garnishee notice is a tool used by the ATO to collect tax debts. The ATO sends a notice to a third party person or business that owes you money or holds your money such as your bank, trade debtors/suppliers, merchant card facilities or in any company you hold shares in so that they can pay ‘your money’ to the ATO to satisfy your tax debt. This notice will require you to comply until all debts have been paid or the ATO retracts it.
Good news for businesses is that before it sends the person who holds your funds the notice, they will first send you a warning that they intend to issue you one. This means that it is possible to negotiate with the ATO to try to find alternative routes of payment. Such as a payment plan to form an agreement with them so that you don’t lose control of your cash flow or suffer any embarrassment from others getting notified.
They’ll contact you either through either SMS, myGov messages, letters or through the phone. However, it is important to know how to spot fake messages to protect yourself from scam.
Small Business Benchmarks
Now you may be asking things like “How do I know if my business will be flagged by the ATO?” or is my business performing appropriately for its size” and “do I need to change anything?”
Thankfully, the ATO has provided a tool for business owners to compare their business performance with a wider range of small businesses to see if they may be operating out of the standard. This tool is known as the Small Business Benchmark Tool.
These benchmarks are in place to:
- Urge business owners to perform annual business health checks to see if their costs are either above or below similar businesses
- Enable businesses to consider any inconsistencies that could be identified or flagged through an audit by the ATO
- To alert the ATO to investigate any businesses that are outside the benchmarking average
The ATO has access to an enormous sum of records. However, they are limited to using metrics through tax return and income activity benchmarks to form and support the benchmarks they have created for small businesses.
However, if after using this tool your business appears outside the benchmarking norm, according to the ATO “it doesn’t necessarily mean you have done anything wrong, but it does indicate something is unusual and may prompt us to contact you for further information.” So, don’t panic if that’s you, it could mean that you are just starting up your business or closing it down, lower selling prices than competitors, higher costs relative to sales or incorrect tax return entries. If your business does perform outside the benchmark, you can read here about what may have contributed to your result.