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When to put tax schemes to the test
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Outstanding Tax returns - Some Years?
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March 2011 Newsletter
Benchmarking and Australian Taxation Office (ATO) Aggressive Approach

The ATO have conducted aggressive action against many small businesses.

Over 100,000 letters have been sent to taxpayers whose profitability does not meet ATO industry benchmarks.  The presumption is if gross profit is less than others in the industry, then that will be as a result of cash income that has not been disclosed.

The only apparent defence is demonstrably good records.  It would not seem to matter whether you are different to others in your designated industry and if the business is struggling for profitability and therefore its administrative effort is not as good as another, it could pay a double penalty.  The ATO can determine the likely assessable income and issue an amended assessment.

There are already some very angry and very disillusioned taxpayers who feel aggrieved that they have been arbitrarily penalised.  It will be some years before the courts make decisions on the legalities of the ATO approach, but neither the courts or the government are likely to have too much sympathy for a struggling business.

It is a relatively easy exercise for the Tax Office to accept the declared purchases and in turn the cost of sales and thereafter predict a normal turnover.  A fundamental flaw in this philosophy is that is impossible for everybody to be the average, but those are below will be targeted.

Profitability varies for a vast number of reasons between businesses and year by year.  Reviewing your classification and then examining your own benchmark, is an important first step.

Demonstrably good records are highly subjective terms, which will be difficult for a junior tax office auditor who has never know the tough world of small business, to even begin to understand.  Businesses that deal in cash are going to be subject to some very difficult times.

Has the presumption of innocent has been abandoned?  Future relationships with the Tax Office may be quite confrontational!