The ATO has released surprising figures indicating that its research indicates that the biggest tax gap – that is the tax reported by this group compared to the tax that is expected – exists for small business.
While many might think that a bigger tax gap might occur for large corporate entities or even individuals, it is actually small business which has the largest discrepancy at $11.1 billion. The corporate tax gap was only $1.8 billion while the individual tax gap was $8.7 billion.
So what does this mean? It means the ATO will start devoting a lot more resources into investigating small businesses and the impact of the black economy (where business deliberately hide or under report their income or overclaim their business expenses). The ATO believes that nearly two thirds of the tax gap is due to black economy behaviour. As such small businesses should ensure it has strong record keeping procedures and makes sure their accountants track their performance compared to the ATO released small business benchmarks (which act as a good guide for the ATO to choose their audit targets).
If you would like to know more about the small business benchmarks and how they relate to your business, please do not hesitate to contact us.