From GST and PAYG to family trusts: Former ATO expert lists common small business tax mistakes

Tax time is often the most stressful time of the year for small businesses, but a former Australian Taxation Office (ATO) official has listed four tips to help entrepreneurs avoid the tax office’s ire in 2023.

Joanne Casburn, a former ATO assistant commissioner responsible for audits and disputes in the private wealth sector, says there are ways for SMEs and enterprises using family trusts to stay in the good books.

Now a special counsel at Holding Redlich, Casburn suggests honesty is the best policy for everything from payment withholding to Fringe Benefits Tax claims. 

Don’t misuse GST, PAYG, and superannuation guarantee withholding

Your business is likely required to withhold GST, PAYG, and superannuation guarantee liabilities to ensure your tax bill doesn’t destabilise your whole operation once it becomes due.

These funds cannot be used to pay down outstanding business debts, and misusing those withheld funds is a major red flag, Casburn says.

Using those pooled funds for other business purposes is likely to draw the ire of the ATO, which can impose significant penalties.

Most notably, the ATO is empowered to level Director Penalty Notices (DPNs) to claw back those funds.

DPNs are particularly powerful as company directors can be found personally liable for those debts, meaning individuals may have to sell their own assets to make up the gap.

Casburn says businesses should speak with the ATO as soon as possible if they can’t pay their way through.

Speaking with an accountant to ensure best practices is another vital step.

Making sure every company director is aware of their responsibilities is also crucial to avoid fund mismanagement.

Don’t mix personal and business bank accounts

Sometimes the most simple fixes are the most effective.

While it can feel efficient for early-stage business owners to pool their personal and professional resources, Casburn warns against doing so, as it can muddy the facts when it comes to tax time.

Organising separate bank accounts is paramount, she said, given the different tax treatments of business expenditure to something as simple as buying household groceries.

Don’t ignore Fringe Benefits Tax

Fringe Benefits Tax (FBT) applies to benefits granted to employees above and beyond their standard salary.

It is common for FBT to cover things like company cars provided to staff, which are then partly used for private purposes.

FBT exemptions can apply when those benefits are primarily used in the course of the job.

Casburn warns against bending the FBT rules by claiming FBT exemptions on benefits primarily for personal use.

The ATO is sceptical of businesses claiming work cars are used 100% for business purposes, and has enacted tough data-matching systems, including VicRoads registration checks, to ensure compliance.

Businesses ought to review the benefits provided to employees and directors, and should talk with their accountant about an FBT self-correction if the personal use-work use balance is askew.

Don’t push the envelope on family trusts

Distributions from family trusts are a perennial focal point for the ATO, and Casburn says the tax office is set to ramp up its compliance measures in the years to come.

Specifically, it is keeping an eye on trusts which falsely claim to distribute funds to a number of beneficiaries while actually letting those funds go unpaid.

This is a common tax minimisation approach, intended to make use of the lower income tax brackets of listed beneficiaries.

Casburn said the ATO is digging into unpaid distributions dating back to 2015 to ensure compliance.

Businesses flirting with those plans ought to speak with an accountant and organise payments to the rightful beneficiaries, she said.