ATO is strengthening their compliance action on businesses that deliberately over-claim expenses and GST credits. This helps ensure a level playing field for small businesses that do the right thing.

ATO is seeing small businesses claim expenses and GST credits that don’t meet the rules for deductibility.

Businesses that don’t comply may face audits, adjusted liabilities and penalties.

Common errors we see

ATO’s sophisticated data and analytics help them identify incorrect claims, and they taking firm action where needed. Common errors ATO see businesses make include:

• over-claiming deductions or GST credits
• claiming private expenses as business costs
• making incorrect claims in BAS or tax returns, including claiming GST credits where GST is not included in the price
• failing to keep records or missing records.

Recent outcomes show the consequences of such behaviour. For example, a bistro operator deliberately over-claimed expenses, including GST credits on expenses where GST was not included in the price. This resulted in more than $141,900 in overstated expenses, (including GST credits of $12,900), along with omitted income of $194,000, and over $35,306 in penalties.

How to claim correctly

To claim a business deduction, your expenses must:

• directly relate to earning your business income
• not be private in nature
• be supported by valid records.

If an expense is partly private, you can only claim the business portion. If you’re registered for GST, you can claim GST credits for the GST included in the price of goods and services you buy for your business. If you claim a GST credit, you can’t also claim the GST amount as a deduction in your income tax return.

ATO is urging businesses to correctly report expenses and business deductions in their tax returns and BAS. It’s important to keep accurate records and carefully check all claims before lodging.

Support to help you get it right

Use ATO’s online learning courses and small business benchmarks to help keep your small business on track.

For more information, visit ATO’s focus areas for small business. You can also speak with our RA Advisory’s registered tax professional.

Keep up to date

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Source: ATO