As we reach the halfway mark of the final quarter of the financial year, it’s essential for small businesses to assess their compliance status and prepare for the upcoming tax season. The Australian Taxation Office (ATO) has highlighted several key areas where businesses often stumble. Paying close attention to these aspects now can help prevent unexpected complications and potential audits later. Let’s look into what you should be focusing on to ensure your business remains compliant and financially sound as we move closer to the end of the financial year.

ATO Focus Key Areas

1. Work-Related Expenses

The ATO checks the accuracy of claims for work-related deductions, focusing on direct links to income generation and clear business necessities. The ATO also looks for a consistent record-keeping habit that includes receipts, diary entries, and other documentation supporting the expenditure.

2. Rental Property Income and Deductions

For rental properties, the ATO ensures all income and strictly related expenses are accurately reported. Key points of interest include the proportionality of expenses claimed (only the part related to rental use) and the distinction between capital improvements and repairs, which are often confused.

Note: have a read at our blog on maximising tax deductions for rental property where we discuss about how to apportion these expenses and maximise your tax deductions.

3. Income from the Sharing Economy

The growth of the sharing economy (e.g., Uber, Airbnb) has led the ATO to employ advanced data-matching technologies to cross-check reported incomes. They focus on ensuring that all income received is reported and that expenses claimed are directly related to the service provided. The ATO is also vigilant about the allocation of expenses between personal and business use. Visit ATO for more information on tax for sharing economy.

4. Capital Gains on Investments

The ATO focuses on the correct reporting of capital gains from the sale of assets like stocks, real estate, and cryptocurrencies. This includes accurate calculations of cost bases, complete reporting of disposals, and proper claiming of capital losses. Special attention is given to the misuse of tax concessions and exemptions, such as the main residence exemption or the small business CGT concessions. Learn more about capital gain tax at ATO.

Common Errors to Avoid

• Misclassification of Expenses and Income: Ensure all claims and income classifications align strictly with ATO guidelines.
• Inadequate Documentation: Maintain meticulous records for all transactions, including digital receipts and logs.
• Over-Claiming Deductions: Avoid exaggerating expense claims, especially in grey areas such as home office deductions or vehicle expenses.
• Failure to Report All Forms of Income: This includes all side gigs or occasional earnings, which are often overlooked.
• Incorrect Application of Tax Laws: Stay updated on recent changes and understand how they apply to your specific business activities.

As the financial year wraps up, it’s crucial to stay attentive to all the key areas mentioned and ensure proper record-keeping is maintained. At MKG Partners, our expert accountants are ready to assist you in navigating these important aspects to ensure your tax compliance is seamless. If you need guidance or have any questions about your tax responsibilities, please contact us now.