Small businesses dealing in cash will be targeted by the taxman this year in a crackdown on the black economy.
Tradesmen, hairdressers, child carers, restaurant and cafe owners, publicans, cleaning service operators, scrap metal dealers, computer retailers and those working in the fishing industry are to come under increased scrutiny.
Tax Commissioner Michael Carmody said about 70,000 businesses operating in cash economy industries would be contacted by the ATO this year, 25,000 more than last year.
"Changes made under the new tax system now mean there are in-built deterrents for those thinking of operating in the cash economy and new reporting systems make it a lot easier to detect people avoiding their obligations," Carmody said.
CPA Australia tax counsel Paul Drum said the boost in audit tax officers showed the Tax Office was moving from an educational to an enforcer role.
Drum has these tips for small-business owners when compiling their tax return:
Keep a record of everything
Receipts and records to back up tax deductions will be vital as the taxman pulls out his fine-tooth comb.
Small-business owners should prepare their return expecting to be audited and ensure they have all documentation including bank statements, deposit books, cheque butts, vehicle logs, cash books and other accounting records.
Don't guess the value of your stock
Valuing your stock is tedious but necessary. Don't guess.
Your accounts need to include a value of stock in hand and, if relevant, work in progress at June 30.
Review your assets
It's easy to carry on your books assets that have no real value, are obsolete or have been scrapped. To get a write-off deduction, you must have reviewed your asset register and taken the necessary action before June 30.
Many small businesses mistakenly think GST doesn't apply to the sale of assets if they were bought before it was introduced. Guess what? It does.
Can I claim bad debts as a deduction?
Yes but only if they were written off before June 30. This means the debt must have been brought to account as assessable income and you must have given up all actions for recovery. It is a good idea to draft a letter writing off the particular debt.
Check personal services income
The good news is that the Tax Office is extending its amnesty in this area so small-business owners can get up to speed without incurring interest or penalties yet. The personal service income (PSI) provisions began on July 1, 2000, and are designed to limit the level of deductions that certain contractors can claim.
This includes those who derive PSI through a separate entity such as a partnership, trust or company.
Is there anything else I've forgotten?
Items commonly forgotten by small businesses include interest earned on bank accounts, cash deposits, income earned from other sources and a schedule of non business deposits.
All these should be declared, as should other expenses such as cash payments, the nature of the payment and how the funds were provided.
Your accountant's fees also are tax deductible.
Beat the tax man
Have a separate account for GST, Pay As You Go instalments and super levy payments. Keep business and personal expenses separate.
Set aside enough each week for GST payments. Work out the average GST you pay (collections less deductions for GST you pay on business-related purchases) and set this aside each week or month in your tax-related bank account.
Use the average rate the Tax Office applies for your income tax instalments and put this amount into your tax-related bank account each week or month.
If your cash flow allows it, consider making monthly tax payments. It's easier to remember and, besides, you won't be tempted to draw them down.
The super levy for employees must be paid quarterly by law, but it's better to get in the habit of paying monthly with other tax instalments. Remember, it's not your money.· Listen to your accountant.
If you get into strife, act early. You have more options if you apply for voluntary administration when your business is still functioning. You may be able to do a deal with your creditors.
