Small business essentials

Garreth Hanley:
This is With Interest, a business, finance, and accounting news podcast brought to you by CPA Australia.

Jenny Wong:
Welcome to With Interest. I'm Jenny Wong. In today's show, we're talking with Angela Allen, Assistant Commissioner for Small Business Experience at the ATO, about what small businesses need to know as we approach tax time in 2025.

With the ever-evolving landscape of tax regulations, it's essential for business owners to stay informed and ready. Angela will share insights that can help you navigate this critical period effectively. Welcome to With Interest.

Angela Allen:
Thanks for having me today, Jenny.

Jenny Wong:
Angela, tell us about the ATO’s ‘Getting it right’ campaign?

Angela Allen:
In November 2024, the ATO launched ‘Getting it right’. This is our ongoing quarterly campaign which aims to support small businesses, do just that, get it right from the start.

We know most small businesses try to do the right thing, so to better support them and their advisers, we are being transparent about what is attracting our attention. Each quarter we are sharing specific risk areas we are focusing on. These are based on the issues found through our intelligence work. We are sharing what is concerning us while taking action against businesses that are deliberately avoiding their obligations.

We will continue to publish quarterly focus areas to ensure all small businesses have an equal chance to success and develop good habits right from the start. You can check out our small business focus areas webpage at ato.gov.au/sbfocusareas.

Jenny Wong:
Angela, what are the current focus areas for the ‘Getting it right’ campaign?

Angela Allen:
As mentioned, we are sharing what concerns us and the focus areas we are seeing some small businesses make mistakes. I will briefly discuss three of our recent focus areas.

Contractors omitting income, specifically, we are seeing contractors such as building and construction, cleaning, courier and road freight incorrectly report or omit their contractor income. If you or your clients work as a contractor and provide any of these services, the business you contract to will report payments to us on their taxable payments annual report or TPAR. These payments are income and need to be included as income on your tax return.

Another of our focus areas is in relation to the small business boost measures. This relates to the small business skills and training boost and the small business technology investment boost. We are seeing some small businesses incorrectly claim boost measure due to errors or misunderstanding of the law.

For example, we have seen sole traders with no employees claim the small business skills and training boost. If you or your clients have claimed either boost measure and believe you don't meet the eligibility criteria or have made an error, we encourage you to self-amend your tax return.

The third focus area that I'll talk about is the shift from quarterly to monthly reporting. If a small business has a history of failing to comply with their tax obligations, we can move them from quarterly to monthly reporting as part of our corrective action.

Our next quarterly focus area is called Ready for business, which is about supporting new small businesses set up good practices, so they get it right from the start. Again, you will be able to find more information on Ready for business and what is attracting our attention at ato.gov.au/sbfocusareas

Jenny Wong:
Angela, you mentioned the push from quarterly to monthly GST reporting. Why is there a push from quarterly to monthly?

Angela Allen:
Yeah. Thanks, Jenny. In April, we started moving some small businesses who have a poor compliance history and despite our numerous communications, haven’t engaged with us. So, we've moved them from quarterly to monthly reporting. The move supports these small businesses to meet their tax and super obligations, helping them embed good business habits by better aligning reporting to their natural end-of-month reporting processes. If your client has been moved to monthly reporting cycle, the change will be in place for a minimum of 12 months.

Our simple message is to small businesses who continue to deliberately disregard their obligations and don't engage with us, you can expect the ATO to move them to more frequent GST reporting. What's positive about the action is that small businesses who have voluntarily switched to monthly reporting have told us that it has helped them stay on track, and it's helped them manage their cash flow and meet their tax obligations by making smaller, more manageable and regular payments.

Also, I'd just like to mention a couple of tips for businesses. So, in general, if you set aside your GST, pay as you go withholding and super from your cash flow, so the funds are available when it's time to pay. So quite often, setting up a separate bank account to include these payments from your business account is a good help. And another good idea to avoid a large tax bill at the end of the year is to voluntarily prepay your estimated income tax liability through a pay as you go instalment.

Jenny Wong:
Angela, can you explain the common mistakes small businesses make when it comes to distinguishing between business income and personal income?

Angela Allen:
So, when it comes to business income and personal income, it's important for small businesses to remember that if you use business income or assets for personal use, there may be tax consequences under Division 7a if you don't account for the transactions accurately. This might be things like payment and reimbursement of personal expenses or using business assets for private purposes, like using the business car to take the kids to soccer on the weekend.

It's important to report these transactions correctly and keep accurate records. For example, Division 7a contains a series of integrity rules that may apply when a company attempts to provide money or other benefits to its shareholders or associates without paying the right amount of tax.

The most common errors we’re seeing are caused by shareholders which are owners and associates maybe not understanding that a company is a separate legal entity, and the company's money and assets are not the owners.

For example, using company assets for personal purposes or using a single bank account or credit card for personal and company expenses. Quite often this makes it really difficult to distinguish what are personal and what are business expenses.

Another common mistake is around repaying and managing loans made to shareholders or their associates. If certain conditions are not met, the shareholder and associates may be taken to have received a Division 7a deemed dividend. It's important small businesses regularly cross-check their records and keep track of their business expenses, cash flow and assets. This will help catch any mistakes early.

Jenny Wong:
Angela, by taking this approach and sharing the areas the ATO’s focused on, are you seeing results? Is this approach improving compliance?

Angela Allen:
Yes, Jenny it certainly is. And we're seeing how engaged small businesses and their advisers are in the campaign. I'll just run through a couple of outcomes we've seen from the campaign. So we've had 24,000 engagements with small businesses or their advisers to prompt them to comply with firmer action to follow for those who don't engage. For example, through our rideshare campaign, if you provide these services, you must be registered for GST regardless of your turnover. We identified ride sourcing drivers who hadn't registered for GST and were not paying GST. We sent out nudge messages and letters to the drivers to remind them to register. And what we've seen from this campaign is over 3000 ride sourcing drivers register for GST in just over six weeks.

We've also seen around 1000 taxpayers self-amend their tax return due to mistakes as a result of our campaigns around non-commercial losses, contractors omitting income and small business boost measures. We've moved over 2000 small businesses with a history of non-compliance from quarterly to monthly GST reporting to help them get back on track. There's also been a significant increase in a number of people accessing our online learning tools, which is Essentials to strengthen your small business, which is a really fantastic result that small businesses are going in to investigate further what they need to do.

Jenny Wong:
Angela, what help and support does the ATO offer small businesses to help them develop good business habits?

Angela Allen:
The ATO is committed to help small businesses get it right, and we have a range of tools and services for both small businesses and their advisers. In terms of support tools and learning products to support small businesses, I’ll talk about a few, however, I would recommend to advisers and small business owners go to ato.gov.au/sbsupport for further information.

So a couple I'll just work through quickly. Essentials to strengthen your small business is our flexible and free online learning platform. There’s over 30 self-paced courses on all things tax and super, which can be accessed at any time convenient to you.

There's also a range of courses designed to help build financial and business literacy, so small businesses are able to thrive and meet their tax and super obligations. We've had over a million visitors to the site, and we've received some really fantastic feedback.

The second thing is the record keeping evaluation tool is another great resource for small businesses. The tool can help them assess how well they are keeping their business records, and tips to set up good processes.

The Cash Flow Kit is a great resource advisers can use with their small business clients to help build their skills. The inbuilt coaching model can help advisers to discover more about their client and their financial situation.

And lastly, I'll just mention the Tax Time toolkit for small businesses. The toolkit has factsheets and a directory of useful links to information, tools, calculators and learning resources, and other support and services for small businesses. Just a reminder, these support resources can be found at ato.gov.au/sbsupport.

Jenny Wong:
Angela, what's the best way for small businesses to stay up to date with tax news?

Angela Allen:
Subscribing to our small business newsletter. You can subscribe by heading to ato.gov.au/sbnews. It's the best way for small businesses and their advisers to keep up to date with the latest tax and super information from the ATO. Once you subscribe, it's delivered straight to your inbox every month.

Jenny Wong:
It's clear that preparing for tax time can be a complex process for small business owners. Thank you for shedding light on these vital topics today. There's so much we could dive into, but I really appreciate your time and insights, Angela.

Angela Allen:
Thanks, Jenny. I was really pleased to be able to be here today and help small businesses get it right from the start.

Jenny Wong:
Thank you for listening to With Interest. Don't forget to check the show notes for links and resources from CPA Australia and the ATO. If you found value in this episode, please share it with your friends and colleagues and hit the subscribe button so you don't miss future episodes. Until next time, thanks for listening.

Garreth Hanley:
You've been listening to with Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover with interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business and accounting news.

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