Last week, the government announced that legislation to extend the $20,000 instant asset write-off for small businesses for another year was passed by the senate with no amendments.
Whilst supporting the extension of the tax break, Chartered Accountants Australia and New Zealand (CA ANZ) head of tax Michael Croker has warned SME owners that the ATO will be carefully monitoring how taxpayers respond to this tax concession.
“The ATO monitors business spending and any ‘high risk’ behaviours can result in follow-up contact,” Mr Croker said.
“Spending leaves a data trail, and the ATO expects that trail to lead to bona fide business activity. Few appreciate the huge amount of data the ATO collects to monitor business spending patterns.”
CA ANZ warned that the ATO will be on the lookout for businesses falsely representing their annual turnover to be under $10 million, as well as breaking down one large purchase into lots of less than $20,000 purchases.
Also on their radar will be false invoicing, collecting discarded cash receipts to make false claims, pretending something is worth nearly $20,000 when it isn’t, and buying equipment for personal or home use rather than business use.
Finally, they will monitor private buyers giving funds to small business operators and asking them to buy equipment on their behalf, quoting a false Australian Business Number, and non-business taxpayers misrepresenting their eligibility for an Australian Business Number.
Mr Croker also issued a warning to small businesses owners not to fall for end of financial year “dodgy deals” in order to get the $20,000 tax deduction.
“Chartered Accountants know from experience that clients get the best outcomes when they take time out to think about what new equipment will boost productivity and the cash flow impacts,” Mr Croker said.
Mr Croker said that SME owners should consider what new equipment their business really needs, if they have budgeted for this spending, and how they would finance the purchases.
Now that the legislation has been extended till 30 June 2018, Mr Croker said they should think about spreading the expenditure over two financial years. He also reminded that the equipment must be installed and ready for use by 30 June 2017 to get the deduction this financial year.