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Client Alert for October 2012
Wright Partners • Oct 14, 2012
New company loss carry-back regime
ATO focus on small businesses and wealthy individuals
- tax performance that varies substantially from business performance;
- inconsistencies in activity statements or spikes in refund claims;
- large, one-off or unusual transactions;
- tax and economic performance that varies significantly from similar businesses in the same industry;
- unexplained losses;
- tax outcomes inconsistent with the intent of tax law;
- lifestyles not supported by after-tax income;
- treating private assets as business assets;
- not disclosing offshore dealings with overseas entities, especially low-tax jurisdictions and tax havens that allow banking secrecy;
- using complex structures and intra-group transactions to minimise tax;
- poor governance and risk-management systems;
- distortions and inconsistencies in market valuations and apportionments; and
- business performance that falls outside small business benchmarks (for businesses with turnover of up to $15 million).
TIP: The ATO's main tool for detecting non-compliance is matching information reported to it by taxpayers and third parties, such as financial institutions both in Australia and overseas. The ATO says its matching capabilities have grown strongly over the years. This financial year, the ATO expects to match over 600 million transactions.
Bakery finds itself on the wrong side of ATO benchmarks
TIP: The ATO publishes small business performance benchmarks that it uses to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income. There are benchmarks for over 900,000 small businesses in over 100 industries.
The ATO says approximately 90% of businesses in benchmarked industries fall within a benchmark range. This means around 800,000 businesses are likely to be competing on a level playing field with their peers. Reporting greater net income than industry peers could be a sign that a business has forgotten to claim a relevant business deduction. However, reporting significantly lower income than industry peers would attract ATO attention.
The ATO says approximately 90% of businesses in benchmarked industries fall within a benchmark range. This means around 800,000 businesses are likely to be competing on a level playing field with their peers. Reporting greater net income than industry peers could be a sign that a business has forgotten to claim a relevant business deduction. However, reporting significantly lower income than industry peers would attract ATO attention.
Worked overseas, but still an Australian resident, says Tribunal
TIP: Taxpayers classified as residents of Australia pay Australian tax on their worldwide income, whether derived in or outside of Australia, subject to certain exceptions. In respect of foreign sourced income, a resident pays tax in Australia on that income but receives a foreign income tax offset for any overseas tax they are personally liable to pay on that foreign income.
TIP: Foreign sourced income derived by Australian residents remains a key ATO compliance focus area. The ATO increasingly obtains information from financial institutions and other organisations, both in Australia and overseas, that may identify employment-related income.
Superannuation: excess contributions tax assessment set aside
TIP: The Commissioner may only exercise his discretion to reallocate or disregard excess contributions if "special circumstances" exist and the making of such a determination is consistent with the objective of the superannuation regime, ie that individuals build their superannuation gradually over their lifetimes.
TIP: The Government has recently amended the law to allow a limited, once-only refund option for excess concessional contributions of up to $10,000. The new refund option is only available for excess concessional contributions in respect of the 2011-2012 or later years, and only for the first year. The refund option provides some relief, but is not without conditions and limitations.
Goods taken from stock for private use
