It's tax time and with the cost of living increasing and unemployment rising, the temptation has never been so high for full or part time working Aussies to earn extra income from a sideline business or the sharing economy. However, along with extra income earned, also comes extra tax and superannuation payments.
Therefore, it is important for you to declare all of your income and remember that any mistakes (whether they are honest or not) are more likely to be uncovered by the "sophisticated data-matching" program used by the Australian Taxation Office (ATO) which is designed to increase community confidence in the integrity of the Australian tax system.
ATO assistant commissioner Peter Holt said the ATO's program would check more than 650 million pieces of data this financial year. "This allows the ATO to identify and analyse people who have earned income through sharing economy platforms such as ride sharing and short-stay online rental platforms."
"One of the most common mistakes we see is small businesses failing to keep appropriate records. We want small businesses to know that you don't need to be concerned by our visits, if you aren't getting it right if you need support, we are willing to help," Mr Holt said.
"Businesses that pay cash in hand, or forget to lodge income tax or BAS statements, or don't pay their employees super, get an unfair advantage and make it harder for other businesses. By detecting and addressing this behaviour, we can ensure a level playing field for honest small businesses."
"If businesses know they have made mistakes we encourage them to let us know and work with us or their tax professional."
"We get tip-offs from the local community about those not doing the right thing. The community as a whole is concerned and wants those who try to seek an unfair advantage to be held accountable," Mr Holt said.
"We want to help Australian businesses get their tax and super right. We understand that people are busy and most businesses are trying to meet their obligations but there is a difference between needing help, making mistakes and deliberate cover-ups."
Mr Holt said that the ATO is committed to helping those that are trying to do the right thing, but they will take strong enforcement action against those deliberately avoiding tax and super, attracting penalties of up to 75 per cent of the shortfall amount.
"If you are engaged in the sharing economy or provide other types of services, the income you earn is taxable and needs to be declared in your tax return, even if you are not in business," Mr Holt said.
"You can claim deductions for expenses directly related to the services you provide. However, you must have records to prove you incurred the expense and weren't reimbursed for it, and if the expenses relate to both personal and income-producing use you can't claim a deduction for the personal use portion.
"For example, you can claim a deduction for a laptop if you bought it for your business just claim for the proportion of business use, not private use, and keep your receipt."
If you can prove you work from home, you may be able to claim items such as home-office expenses, and a percentage of rent and bills (calculated with an hourly rate). If you are considered to be a small business entity (earning less than $2 million dollars each year), you may have the potential to immediately write-off the complete cost of depreciating assets that are priced at less than $20,000 each.
That means you could potentially claim:
Mr Holt said the top three problems the ATO saw in small business owners' tax returns were: