Small businesses need tax help

So what else is new you say! That heading won’t shock any SME. The question is where to get that help. The SME’s adviser or accountant is one obvious source, but the ATO is another very valid source.

Australia has almost three million small businesses, employing about one in five of the workforce. Small businesses therefore represent a large target sector for the ATO. Little wonder when you consider a survey by American Express earlier this year revealed a staggering 39% of small businesses keep their tax receipts in a shoebox!

Not surprisingly, the ATO does try to help, especially where a small business is just starting. Some of the guidance materials it can provide include:

• a checklist for people starting a new business;
• information about tax assistance visits by the ATO;
• tip and fact sheets about a range of business topics; and
• an easy-to-use small business tax calendar to plan and manage business tax obligations.

The ATO also contacts businesses that register for pay-as-you-go withholding when they take on staff for the first time or register for GST when their turnover exceeds the $75,000 threshold, to help them get it right from the start.

Recently, the Tax Commissioner said that, in collaboration with local councils, industry associations and other government agencies, the ATO offered assistance to small business operators in western Sydney.

In one example in Penrith, the sister-in-law of a couple operating an earthmoving transport company attended an ATO seminar and got the couple to ask for an assistance visit. The couple in their first year in business earned $100,000 with the turnover increasing to around $2.6 million in the second year.

During the visit, the ATO discussed the company’s need to move from cash to accrual accounting; how to better plan its cashflow; and how to manage its tax liabilities associated with much higher levels of income.

In another “good news” story, after reading an article in a Darwin newspaper about small business assistance visits on offer, a builder who registered for an Australian Business Number and for GST in July 2000 “because he thought he had to”, sought an ATO assistance visit as he had a significant amount of unopened mail from the ATO, causing him “sleepless nights”.

As he had operated his business for only a short period and was an employee for the rest of the time, the ATO helped him tidy up his un-lodged quarterly business activity statements. He also cancelled his GST registration, which he no longer needed.

The ATO also uses what are known as Taxpayer Alerts to provide early warning of arrangements it is concerned about. Recently, the Commissioner says the ATO has seen small business involved with deemed dividend schemes, labour hire arrangements (splitting income from personal services through the use of a discretionary trust ), research and development abuse, and foreign trust arrangements (foreign based discretionary trusts used to avoid taxation on Australian sourced income).

Employee vs contractor

There are, of course, regular problem areas. One of those is the issue of whether someone is an employee or a contractor. Disputes about this are becoming more common, especially in light of increased action by Fair Work Australia, and I have written on a number of occasions about this issue.

In a very recent case, Fair Work Commissioner Jones ruled that a specialist Microsoft software consulting firm had 15 employees, finding two alleged contractors were, “as a practical matter”, employees. Therefore, the firm was not exempt from unfair dismissal claims nor could it avoid an obligation to make redundancy payments as per the Fair Work Act 2009. I’m sure this won’t be the last of the employee vs contractor cases that we will see.

In 2011-12, the Tax Commissioner said from its audits the ATO collected details of approximately 51,000 payments made to around 41,000 contractors, about 18,000 of which were individuals. The ATO found that 48% of businesses that engaged contractors were wrongly treating individuals as contractors. These workers were legally employees but were missing out on employee entitlements such as superannuation. To help SMEs, the ATO has an Employee or Contractor homepage on its website.