Are you ready for the ATO's compliance crackdown on growing businesses?

The Australian Taxation Office (ATO) is stepping up its compliance efforts, targeting medium-sized and emerging businesses through its tax performance program.

Businesses that are growing rapidly or that have a substantial turnover, could soon be hearing from the ATO as part of the medium and emerging program for private groups which will be focusing on: 

• Private groups linked to Australian resident individuals, who, together with their associates, control wealth of between $5 million and $50 million. 

• Businesses with an annual turnover of more than $10 million that are not public or foreign-owned and are not linked to a high-wealth private group. 

If your business falls within this scope, it’s time to ensure your tax affairs are in order. The ATO has identified the key areas they will be focusing on due to commonly made errors. These include: 

• Trusts 

• Business loans and Division 7A 

• Capital gains tax concessions 

• Income reporting 

AR & B Advisors Director, Alex Hew, believes that while the ATO is currently focusing on growing businesses, all businesses, regardless of size, can take this opportunity to review their compliance efforts. “Preparing for a potential ATO review isn’t just about avoiding penalties, it’s an opportunity to ensure your business is running smoothly and staying compliant, and this can apply to businesses of all sizes,” Alex says. 

Trusts 

Trust structures are a common feature of many private groups, but they also attract significant scrutiny. Alex, emphasises the importance of meticulous record-keeping and governance. “Accurately recording income and expenses, properly documenting personal entitlements, and completing distribution minutes before June 30 are essential steps for trust compliance. Adhering to Section 100A requirements is equally critical to avoid unnecessary scrutiny,” advises Alex.  

To ensure you are meeting your compliance requirements you should: 

• Confirm that all trust distributions are properly documented and align with the trust deed. 

• Review profit distribution practices, particularly for professional firms. 

• Seek professional guidance before completing complex transactions, such as buying or selling assets that may trigger capital gains tax. 

Business loans and Division 7A 

Division 7A governs loans made by private companies to shareholders or associates, and errors in documentation or repayment schedules can have significant consequences. “Businesses must understand that Division 7A loans have long-term implications. Accurate documentation and repayment planning are essential to avoid unnecessary penalties,” says Alex. 

When it comes to business loans, businesses should: 

• Conduct annual checks to ensure loans comply with Division 7A agreements. 

• Monitor repayments and benchmark interest rates closely. 

• Avoid reborrowing from private companies to make repayments, as this can lead to non-compliance. 

Capital gains tax concessions 

Capital gains tax (CGT) concessions can provide valuable relief for businesses undergoing restructuring, but eligibility criteria must be reviewed annually. Alex notes that navigating these concessions requires expertise. “This isn’t something business owners can easily handle on their own. Each transaction needs careful analysis to determine eligibility,” he explains. 

For CGT concessions, businesses should: 

• Work closely with your accountant during any restructuring process. 

• Review your business’s eligibility for small business CGT concessions before finalising transactions. 

• Plan ahead to maximise the benefits of available concessions. 

Income reporting 

A common issue that the ATO has flagged is omitted or incorrect reporting of income. It is the responsibility of business owners to ensure that their income reporting is accurate because even unintentional errors can draw scrutiny from the ATO. Some practical steps business owners can undertake include: 

• Reconciling income records regularly to ensure all revenue is reported correctly. 

• Correcting any mistakes or omissions as soon as they are identified by lodging amendments with the ATO. 

• Using professional accounting software or services to reduce the risk of errors. 

Proactive steps to maintain compliance 

Even if your business appears fully compliant, it could still be reviewed. Taking a proactive approach can save time, stress, and money. It is also important to remain transparent and open with the ATO.  

Alex recommends checking in with your accountant regularly to ensure your financial records and processes are robust. “Being on the front foot can make all the difference. You should schedule regular reviews with your accountant to identify potential risks, ensure your meeting reporting deadlines for obligations like superannuation and single touch payroll, and seek advice early when it comes to complex tax matters,” Alex advises. 

Seek advice from your accountant or business advisor 

Navigating the ATO’s compliance focus doesn’t have to be overwhelming. Sometimes the best thing you can do for your business is to hire someone with the expertise to handle the finances for you. An accountant or business advisor can help you take control of the big picture, while you keep your business running smoothly.   

For advice and assistance on trusts, business loans, CGT concessions and income reporting, get in touch with one of our advisors via info@arb-advisors.com.au or contact us here.