Tax traps

Who the ATO defines as the SME market:

There are more than 600,000 taxpayers in the SME market. In 2010-11, the ATO collected $272.97 billion, about $74.7 billion of which came from the SME market. The ATO breaks the SME universe into three segments:

1. Individuals with an estimated net wealth of $30 million-plus.

2. Individuals with estimated net wealth of between $5 million and $30 million.

3. SMEs with turnover of $2 million to $250 million.

‘Characteristics’ that attract the ATO’s attention

• Tax performance varying substantially from business performance
• Inconsistencies in activity statements or spikes in refund claims
• Large, one-off or unusual transactions
• Tax and economic performance varying significantly from similar businesses
• Unexplained losses
• A history of aggressive tax planning
• Weaknesses in compliance structures, processes and approaches
• Tax outcomes inconsistent with the intent of tax law
• Lifestyle not supported by after-tax income
• Private assets treated as business assets
• Business assets used for tax-free private use
• Dealings with overseas entities, especially low-tax jurisdictions and tax havens that allow banking secrecy, not disclosed
• Use of complex structures and intra-group transactions to minimise tax
• Transactions where the tax and economic outcomes are inconsistent
• Poor governance and risk-management
• Distortions and inconsistencies in market valuations and apportionments
• Performance that falls outside small business benchmarks

(Source: ATO)

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