A large number of businesses in the small-to-medium enterprise (SME) market segment are reporting revenue losses following the global economic downturn. Due to this, the ATO has stepped up their engagement and compliance focussed losses programs and campaigns. To ensure losses are incurred and used in accordance with the tax law, the ATO is helping SMEs to understand their obligations and deal with non-compliance by reviewing and auditing higher risk cases. As part of the ATO’s revenue loss initiative for 2011, the ATO is undertaking the following campaign activities:

Pre-lodgment awareness campaign

The ATO is writing to selected SME companies (via their tax agent) with carried forward losses in their 2009 income tax return. These letters provide educational guidance about common issues associated with revenue losses.

Verification campaign

The ATO is also writing to selected SMEs (via their tax agent) that generated, deducted or carried forward significant tax losses in the 2008 or 2009 income years. This letter notifies the selected businesses that the ATO may seek further verification of those loss amounts through a questionnaire, or where necessary, a more formal review or audit process.

What you need to do

If your business has reported losses in either the 2008 or 2009 income year, we suggest you seek the help of a professional to check these losses and to ensure you are still eligible to use them. Some common mistakes that many businesses make include:

•   losses used where the company does not satisfy either the ‘continuity of ownership’ or ‘same business’ tests
•   losses incorrectly transferred to the head company of a consolidated group
•   losses incorrectly used due to incorrectly calculating the available fraction in a consolidated group
•   losses incorrectly used due to not making the required adjustments to the available fraction
•   records not accurately kept to support or reconcile the loss
•   losses that do not satisfy the ‘same business’ test and result in further losses carried forward
•   carried forward losses not checked to ensure they are correctly calculated, including amendments to prior-year tax returns and losses cancelled by the business.

If you have any questions regarding the ATO’s increased focus on small-to-medium enterprises with revenue losses it is important that you seek professional advice to potentially avoid any penalties. Here at The Quinn Group our experienced team of accountants and tax agents can assist your business with all of its accounting, bookkeeping and taxation needs and can assist you if you have been contacted by the ATO for a review or audit. For more information on whether or not your business could be targeted by the ATO or for any other general enquiries, submit an online enquiry, or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.