Small business tax focus

THE large paperwork and compliance load on small businesses has been highlighted by a new tax office report on its compliance program for 2002-03.

The report itemises the volume of paperwork facing Australia’s 2.5 million ‘micro’ businesses; ie those with annual turnover of less than $2 million.

Most of these businesses have an annual turnover of less than $200,000 and are family businesses with few or no employees.

In the current financial year, micro businesses are expected to lodge nearly four million income tax returns, 3.2 million monthly activity statements and 7.8 million quarterly activity statements.

While about 95 per cent use tax agents to prepare their income tax returns, only 55 per cent use a tax agent to prepare their activity statements.

The ATO said its main compliance focus was to help and educate micro businesses through their tax agents and industry associations, and by providing information directly.

In addition, the tax office’s 3,000 field staff are expected to contact one in 10 micro businesses as part of their audit program. This will include a concerted crackdown on the cash economy.

The tax office specified a number of concerns with micro businesses, including that business records would be inadequate for tax and cash flow management purposes.

“A common error by micro business owners is to incorrectly assume they are entitled to an ABN and can register for GST,” the report says. “This can result in people completing activity statements and claiming GST refunds for which they are not entitled.”

A related issue may arise where an individual is engaged as a contractor but, due to the nature of their work arrangements, is a common law employee.

 “Other common errors include claiming input tax credits for the full amount of a purchase where the goods or services are used partially for private purposes, or failing to exclude private expenses when claiming input tax credits and deductions for expenses,” the report says.

Australia’s 100,000 small to medium enterprises (SMEs) – businesses with annual turnover between $2 million and $100 million – also face a substantial paperwork burden.

They are expected to lodge 75,000 income tax returns, 200,000 monthly activity statements and 800,000 quarterly activity statements.

Tax agents lodge approximately 98 per cent of the SME sector’s income tax returns.

Australia’s 10 million individual taxpayers (mostly wage and salary earners) are less inclined to use a tax agent, with about 25 per cent preparing their own tax returns. In 2002-03, individuals are expected to lodge 10.9 million income tax returns, 200,000 monthly activity statements and 800,000 quarterly activity statements.

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