Tradies are predicted to be in the crosshairs for ATO this year as they tend to present data inconsistencies in their reported income. Here is how to avoid being the ATO audit target:
1. Report your cash income
As we know, tradies are known for doing a job for cash. This is all well and good, but it may not always be reported correctly. Income should be recorded as the amount you invoice the job for, not the amount that is deposited into the bank. Tradies should also be aware of the new $10,000 cash limit law that imposes a penalty for businesses accepting payment equal to or more than $10,000 in cash.
2. Overclaiming expenses
On top of under reporting income, there is also a tendency to overclaim expenses in the industry. Avoid double dipping on expenses or claiming private expenses in your tax returns. If you use your vehicle for work, make sure you have a well-documented logbook to track your work travels, and keep all relevant receipts for the vehicle. ATO has data of expected profit margin for various industries and when these margins are out of what is expected, you might be at risk of an audit.
Each year, businesses in the Building and Construction industries need to lodge a Taxable Payment Annual Report (TPAR) informing ATO what has been paid to other subcontractors in the industry. If you hire subcontractors, or is subcontracted to another construction company, ensure that the amount reported matches with the parties you are dealing with.
4. Paying employees’ tax and superannuation on time
Ensure that you are paying your employees tax and superannuation on time. Any late payments are automatically penalised by the ATO. Late superannuation payments are also not tax deductible, which is a risk of you paying higher tax at the end of the year. This is a good time to review if you have any superannuation guarantee shortfall in previous years to take advantage of the Super Guarantee Amnesty before 7 September 2020.