Growing Your Small Business? Here’s How to Stay on Top of Your Tax Obligations

As your business grows, so do your tax responsibilities. The ATO has specific tax measures for “medium and emerging private groups,” which include businesses with over $10 million in turnover or assets between $5 million and $50 million. If your business crosses these thresholds, you’ll need to pay extra attention to certain areas to avoid unnecessary penalties and make sure your growth remains smooth.

The ATO’s Medium and Emerging Private Groups Program: What You Need to Know

This program helps the ATO keep tabs on businesses moving up into larger financial brackets, ensuring they’re meeting their tax obligations. The ATO might reach out to your business with support or a review if you:

1. Use complex structures, like multiple trusts or subsidiaries
2. Take part in big commercial deals or restructures
3. Have a history of missing details on your tax returns

The ATO uses data and analysis to identify potential tax risks and gives tailored advice to help businesses avoid common pitfalls. Here are the key tax areas you’ll want to stay on top of as your business grows.

Key Areas to Keep an Eye On

1. Trust Structures

Trusts are common for small businesses, but as your business grows, they need extra care to ensure everything’s above board. Mismanaging trusts can create big tax headaches. For example, distributing income to family members in the wrong way could lead to extra tax and penalties.

Here’s how to keep trusts compliant:

1. Review trust deeds annually: Make sure they’re up-to-date with current tax laws.
2. Manage family trust elections carefully: This limits distributions to specific family members and helps ensure tax protection.
3. Consult a tax agent if needed: Trusts can be complex, and regular advice can prevent costly mistakes.

2. Division 7A Loans: Avoiding Taxable Dividends

Division 7A is a rule that affects loans made by private companies to their shareholders or associates. If these loans aren’t properly structured, the ATO may consider them unfranked dividends, which means they could be subject to additional tax.

To avoid this, make sure:

1. Loan agreements are formal and meet ATO standards: This includes having a written agreement and setting proper interest rates and repayment schedules.
2. Repayments are on track: Missing repayments or setting the wrong terms could make the ATO classify the loan as taxable income.

For example, say you borrowed funds from your company to cover a big expense. If that loan isn’t documented correctly, the ATO could treat it as extra income on your tax return.

3. Capital Gains Tax (CGT) Concessions

If you plan to sell or restructure assets in your business, you may be eligible for CGT concessions, which can significantly reduce the tax on capital gains. However, as your business grows, the eligibility requirements can change, and it’s important to review this regularly.

Here’s what to do:

1. Check eligibility every year: Even if you qualified for CGT concessions last year, growing turnover or asset values could affect this.
2. Keep good records: For instance, if you purchased a commercial property for your business, document any renovations or improvements, as these details impact CGT calculations.
3. Get advice before major transactions: If you’re planning to sell a key business asset, consult your tax agent to make sure you’re positioned to make the most of your CGT concessions.

4. Accurate Income Reporting

With growth, it’s easy to miss income from different sources, especially if you’re managing multiple projects or expanding services. Missing or misreporting income is one of the main triggers for ATO audits.

To keep your income reporting on track:

1. Reconcile your accounts regularly: This includes all revenue, even one-off payments or asset sales.
2. Amend records promptly if you find an error: Mistakes happen, but fixing them quickly can prevent penalties.
3. Use data from third parties to double-check: The ATO often cross-checks income information from banks, suppliers, and other sources, so it’s essential your records are accurate.

For example, if you received a large payment for a contract completed earlier in the year, make sure it’s recorded accurately in the current year’s income.

5. Staying on Top of GST Obligations

Growing businesses are often subject to GST integrated reviews, especially if they handle large transactions. Keeping accurate GST records and understanding your entitlements or concessions is critical.

To stay compliant with GST:

1. Keep clear records for each GST transaction: Ensure invoices are properly itemised.
2. Understand your eligibility for any GST concessions: This is particularly relevant if you’re dealing with multiple business activities or entities.

For instance, if you’re running a hospitality business and just added a catering branch, ensure GST is tracked accurately for both parts of the business, so there’s no confusion when the ATO reviews your records.

How the ATO May Engage with Growing Businesses

If your business is part of the Medium and Emerging Private Groups Program, the ATO might conduct:

1. Risk Reviews: These are check-ups on areas like income accuracy, trust distributions, and overall tax reporting.
2. Pre-lodgement Agreements: Before major transactions, the ATO may offer guidance to streamline tax compliance and prevent issues.
3. Audits in higher-risk cases: If there are significant issues, the ATO may audit to ensure compliance, particularly for businesses using complex structures.

Next Steps for Growing Businesses

Scaling a business is exciting but comes with added responsibilities. Staying on top of your tax obligations not only helps avoid penalties but also keeps your growth on track. At Wakefield Pacific, we specialise in helping businesses navigate these challenges. If your business is experiencing growth and you’re not sure where to start with these requirements, get in touch. We’ll work with you to ensure your tax compliance is seamless, so you can focus on what matters most: growing your business.

Reach out to learn more about how we can support your journey.

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