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Is your Business Tax Compliant?

Tax compliance is one complicated topic. Individuals and corporate entities alike are subject to this mandatory contribution to the government, which comes in various forms, and in accordance to existing laws. Because of the grave importance of tax in ensuring the continuous flow of money into the government, the penalties for evading its payment are drastic and severe. For business owners, therefore, it becomes a necessary requirement that they know about the applied tax laws in their location of the business, and adhere to the same as religiously as possible.

How do you ensure tax compliance?
When tax legislation changes constantly, companies need to ensure tax compliance by addressing change systematically.

There are 6 phases to compliance maintenance:
  1. Monitor requirements. This is the basis. …
  2. Interpret. …
  3. Adjust your systems and processes. …
  4. Test. …
  5. Deploy to your production systems. …
  6. Audit.

Understandably, though, not all business owners would automatically know about the tax requirements expected of them and their business. This is why the government of Australia, through the Australian Tax Office (ATO), offers free seminars for small businesses, giving a general overview of the different types of taxes and how these apply to businesses. By providing the necessary information, it is the goal of the ATO to instil the rudiments of tax compliance to business owners, so that they won’t have to face legal problems later on.

To further help those who are in need of basic education on tax and being compliant with it, here are some simple steps that entrepreneurs can take.

Why do companies get audited by the government?

One of the first things that business owners must know about is the concept of audits. In a nutshell, this is a very stressful process wherein the ATO checks up on your business’ finances to make sure you are paying exactly what is due. Basically, you would not want to be audited by the government because it means you are under suspicion of tax evasion.

The ATO, however, does not just go about randomly auditing shops and companies. Rather, they rely on the data provided in the business activity statements and tax returns submitted by the company, and from there, they check if it will pass the set business benchmarks. Otherwise known as key financial ratios, these benchmarks are used to compare the business performance of one entity to another within the same industry.  If your business does not meet the prescribed benchmarks, then the ATO may tag you as a possible candidate for an audit.  Needless to say, that means you will have a lot of explaining to do.

How to “audit-proof” your company

Getting audited, however, is not some trial by fire that new business owners must absolutely go through at least once in their career. If anything, it’s much better not to go through it at all, and keep your business record spotless. To avoid getting audited, the only way to go is by keeping tax-compliant and well within the benchmarks.

  1. Correct your Industry Code and Business Description – You will know which benchmarks apply to you by first determining which specific industry code and business activity description relate to your business. If you are not sure, you can check your end of the year tax return for the code. Remember that whatever is in the code must be aligned with the precise nature of your business. If it isn’t, then make the necessary connections immediately.
  2. Keep Receipts and Bookkeeping Up to Date – Many small business owners find it difficult to catch up with their tax requirements, not because of ill intent, but more because they tend to neglect their books. Some hesitate to hire their own accountants regularly, thinking that they can just get one by the time the deadline rolls around. By then, however, the probability that there are already loopholes or missing receipts has increased.

With so much backlog to cover, it becomes much more difficult to ensure that all bases will be covered. To avoid this, a monthly tracking system must be put in place so that it’s not going to be all too overwhelming come to the deadline

  1. Ensure Proper Declarations – Unfortunately, ignorance of the law is not an excuse. This is why it is imperative for business owners to educate themselves about the requirements that will apply to their business and the taxes expected from them. Taxes are not just all about the expenses and profits that your company has made throughout the year. There are also deductions that will have to be considered, and although the goal is for you to maximise the allowable deductions to your advantage, you just cannot assume which deductions you can avail of.

For this, you might as well rely on a professional, such as a certified accountant, so that you can be guided on filling out your tax forms. Should you have any questions or further clarifications about your tax matters, then at least you can discuss it with them right then and there.

There is no escaping Business Tax.

As mentioned earlier, dealing with taxes can be a complicated matter. Getting in trouble with the tax authorities, however, is far from being an ideal scenario as well. Between suffering the harsh penalties and putting your business at risk, and practising due diligence, it’s fairly easy to see that staying tax-compliant is the only real option that you have.

There is no escaping the issue of business tax, but since it’s all part and parcel of it, you might as well adjust and learn to manage it as effectively as possible.

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