ATO Compliance: Avoiding Common Pitfalls
Keeping your business compliant with the Australian Tax Office (ATO) can feel overwhelming at times, especially with all the rules and deadlines to keep track of. But don’t worry—we’re here to help!
As we are nearing the end of 2024, it’s important to know the common mistakes businesses make that can lead to ATO issues, like fines or audits. In this post, we’ll walk you through these potential pitfalls and give you some simple tips on how to steer clear of them.
‘bad’ record-keeping
Good record-keeping is key when it comes to ATO compliance. If your records are incomplete or disorganised, it can cause problems, especially if the ATO comes knocking for an audit. You’ll need to have detailed records for things like expenses, income, and employee wages.
How to avoid it:
Keep all receipts, invoices, and financial documents in one place.
Go digital with record-keeping software to help keep everything organised and easy-to-access.
Review your records regularly to make sure they’re up to date.
Superannuation Mistakes
Superannuation can be tricky, and it’s an area where many businesses slip up. Whether it’s paying the wrong amount or missing payment deadlines, not following super rules can lead to penalties. The ATO has been keeping a close eye on this, so it’s important to stay on top of your obligations.
How to avoid it:
Take the time to understand your superannuation obligations as an employer.
Make sure you’re paying super contributions for your employees on time, at least quarterly.
Double-check that you’re calculating super correctly, based on your employees’ Ordinary Time Earnings (OTE).
Regularly review your payroll system to ensure everything is running smoothly.
Mis-classifying Employees as Contractors
It’s tempting to classify workers as independent contractors rather than employees, but this can lead to trouble if done incorrectly. The ATO takes this seriously, and if they determine that an “independent contractor” is really an employee, you could face back-payments for super, leave entitlements, and other benefits.
How to avoid it:
Take time to understand the ATO’s guidelines on classifying workers.
Regularly check that you’re classifying your workers correctly, especially if your business or work arrangements change.
When in doubt, get professional advice to make sure you’re on the right track.
Fringe Benefits Tax (FBT) Mistakes
Fringe Benefits Tax (FBT) can be confusing, and many businesses struggle with reporting it correctly. Benefits like company cars or expense reimbursements need to be properly recorded, and any mistakes in your FBT reporting can lead to penalties.
How to avoid it:
Make sure you understand what qualifies as a fringe benefit and how to report it.
Keep clear records that separate business and personal use of any company assets.
If you’re not sure how to calculate or report FBT, a tax professional can be a big help!
Overlooking Division 7A Rules
If your business is a private company, loans or payments to shareholders (or their associates) could be caught under Division 7A rules. If you don’t report these properly, they might be treated as unfranked dividends, which can lead to a bigger tax bill.
How to avoid it:
Keep clear records of any payments or loans to shareholders or associates.
Make sure any loans follow Division 7A requirements, like having proper loan agreements in place.
If you’re unsure about your obligations, get advice from your accountant to make sure everything’s in order.
We recently took on a client with a large Div7a loan which was never reported. If the ATO had a look, they were liable for upwards of $200k in additional tax.
We can help!
Running a successful business while staying compliant with the ATO work hand-in-hand, and it doesn’t have to be this ‘big thing’ that is hard to tackle. Don’t let tax and compliance overwhelm you!
The tips above should help you stay on track but if you are still unsure or require specific advice, we are here to help.
Contact us via email on hello@refreshadvisory.com.au so we can be your trusty advisor and give you peace of mind so you can focus on the rest of your business.