ATO

We’ve previously discussed why you should keep your business and personal finances separate, now there’s another reason.

The Australian Taxation Office (ATO) has announced that they will target business owners with unexplained wealth. In an attempt to recover and minimise lost revenue, it warns careless reporting is not acceptable. Making incorrect small claims can add up to more than $2.5 billion a year in unpaid taxes. While the small cases may not seem worthwhile on an individual basis, it adds up to a huge gap in revenue every year.

The ATO’s data matching tools are unparalleled in Australia, now the ATO is using social media to track people’s lifestyles. New systems allow it to see discrepancies between claims and what it sees on social media. An example is someone claiming a low income, but when checking social media the person has photos of their expensive toys online. Claiming a family holiday as a business expense may also have the ATO questioning your unexplained wealth which could lead to a ‘please explain’ letter.

No longer will it be so easy to claim a spouse and child joining you on overseas business trips as a tax write off. While the business completed on the trip may only take a few days, family are not involved in this. Some people use a business account to pay for everything or claim the whole family trip as a business-related expense. The ATO sees these as opportunistic claims and people need to keep clear records that separate personal from business expenses.

Use Business Bank Accounts Only for Business Expenses

We’ve discussed why you should keep personal an business finances separate before and this is the easiest way to draw a clear line between business and personal expenses.

The ATO is focusing on travel claims so it is important to use business bank accounts only for business. Many fall into the trap of using a business account when mixing business with pleasure, while some intend to pay back the business from a personal account, it can be difficult to reconcile. When this happens, you need the services of a good bookkeeper to reconcile bank accounts according to the receipts. If not, it is easy to forget the difference between business and personal claims when it comes to doing your tax.

Beware of posting photos having fun on business trips on social media. It is not known how the ATO plans to track social media accounts to look at business owner’s lifestyles. But people have a habit of posting everything they do for the world to see. Everything you post becomes public knowledge.

An example the ATO uses of unexplained wealth is a family business with the parents claiming only $65,000 and $55,000 taxable earnings but their children attend private schools and the family goes on holiday overseas every year. If the ATO thinks something isn’t right they can check Facebook for more information when it suspects business claims do not add up.

People need to make sure any business expenses claimed are actually business-related. If not, they may receive a letter from the ATO asking for an explanation. The letter will include a schedule containing the information from your tax return, data it has and any discrepancies.

The best way to keep business accounts up-to-date is to have a good bookkeeper to keep business accounts updated.

Get Compliant

If you would like us to check your books to ensure compliance please contact us now for a free consultation on how we can help you.