Taxes are the so-called lifeblood of the government. The government needs to collect taxes to continue to provide the services that they are obliged to give to their constituents. Taxes then are necessary business expenses. In most jurisdictions in the world, taxes are overhead expenses that must be paid otherwise the business cannot operate. The inability of a business to pay taxes as they come due is also an indicator that your company is low on cash and could likely be insolvent.
In July 2018, the Australian Tax Office launched a pilot program giving review services for small businesses tax audits. The goal of the program is to give an early and fair resolution of disputes against small business tax audits as savings in taxes can also help with a business improve its cash flow. The ATO announced in early April that the pilot program will be extended until December of this year due to the number of small businesses who have availed of the services.
The independent review service for small business tax audits includes disputes on the following:
- income tax
- goods and services tax (GST)
- luxury car tax (LCT)
- wine equalisation tax (WET)
- fuel tax credits (FTC)
How the Small Business Tax Audits are Conducted
The program is composed of two steps:
Step 1: The first step is called the position paper review where an audit team will review the ATO’s small business tax audit. The small business will be given a chance to respond to this review.
Step 2: The second step is the independent review where an independent technical officer will consider the small business’s response and points of disagreement and make a recommendation for the appropriate outcome. Throughout the independent review process, which can last about 45 days from the filing of an independent review request, the small business can participate and introduce new facts, evidence, and arguments that were not raised during the tax audits. The ATO will make changes to the small business tax audit based on the recommendation of the independent technical officer.
A case officer will contact eligible small businesses with tax audits in progress before issuing assessments. The businesses will then be offered the opportunity to participate in the extended pilot.
According to ATO deputy commissioner Scott Treatt, small businesses can expect an independent officer from outside its audit area to review the facts and technical merits of the ATO’s audit position.
The most common issues that small businesses have asked for a review into to date includes omitted cash income, usually due to inadequate record keeping; administrative penalties; deductibility of business expenses; and characterisation of payments to related individuals.
Disputes over superannuation, fringe benefits tax, fraud and evasion findings, and interest will not be considered by the independent review service at this stage, according to the ATO.
“Pleasingly, we’ve only received two objections from businesses that have been through our independent review pilot since it launched on 1 July 2018. This result demonstrates that our pilot program is working as intended for small business in that it’s helping to resolve disputes before matters reaching objection.”Scott Treatt, ATO deputy commissioner
More details on the review process, including how to request an independent review, who are eligible in the pilot program, and when the independent review is not available can be found at the ATO’s website
The ATO noted that not all small businesses will be eligible for an independent review. Nevertheless, this ineligibility does not deprive them of the right to dispute and object to the ATO’s audit. Other dispute options include objecting to any amended assessments and notices, which objections will be dealt with by the ATO’s Review and Dispute Resolution area. The ATO also has an in-house facilitation service that assists businesses in resolving their disputes.
As an alternative to the independent review, ATO also suggested raising concerns with the Inspector General of Taxation relating to administrative actions taken by the ATO or the Tax Practitioners Board. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can also assist and provide general information on how to resolve a dispute, facilitate discussions between business and the ATO. They can provide access to external alternative dispute resolution (ADR) services or refer you to another Commonwealth, state or territory agency who can more appropriately deal with the matter.