New small business benchmarks, and new ATO raids on businesses

The ATO has updated their benchmark data, and their taskforce is targeting so-called phoenix activity.

Why do ATO benchmark changes matter?

We previously explained how the ATO uses small business benchmarking to measure the compliance of small businesses. Understanding ATO benchmarks is important for a small business in that it lets you know if Ato tax penalties may be coming your way – if your turnover does not meet their expectations outlined in the benchmark for your industry, then the likelihood of being targeted by an audit is increased.

The ATO benchmark data has recently been updated. The revised data can be accessed on the ATO website, and you can compare your business performance with that of competitors and the benchmark using the ATO app.

It is important to check to see if the ATO benchmark for your industry has been changed and measure this change against your business’ current and expected turnover. If your turnover does not meet the benchmark data, you will need to work with your business advisor or tax accountant to provide adequate reasons to the ATO so as to avoid or manage a potential audit.

Businesses and accounting firms raided by the ATO

The ATO’s Phoenix taskforce is targeting law firms, accounting firms, businesses, and individuals who are suspected of involvement in so-called phoenix activity.

What is phoenix activity?

Struggling companies engage in illegal phoenix activity to keep the company afloat:

  1. Directors of a debt-laden company transfer the company’s assets to a new company
  2. The new company keeps the same directors
  3. The directors then liquidate the original company to avoid paying employee entitlements, creditors or outstanding tax liabilities.

This allows a deliberately liquidated company to illegally avoid paying its debts, including wages, superannuation and accrued employee entitlements. It gives the company an unfair advantage over competitors, denies suppliers and employees their rightful payments, and results in a loss of government revenue.

How is the ATO cracking down?

Upwards of 25 businesses across NSW, Victoria, and Queensland were recently raided by ATO and affiliated officers. More than a 100 officers made unannounced entrances into the offices and residential sites of law firms, tax accountant firms and liquidators who were suspected of facilitating phoenix activity. This was the first time that the ATO and associated agencies targeted these facilitating organisations, and demonstrates intense and renewed efforts to crackdown on businesses and their associates who engage in phoenix activity.

The raids have so far targeted suspect labour hire firms, property developers, construction companies, cleaning business and restaurants, as well as tax accountants, business advisors, and lawyers who may have helped in setting up the illegal operations.

In 2015–16, the ATO raised $250 billion in liabilities from almost 1,000 audit and review cases involving phoenix behaviour, and in light of these recent raids, this crack down is continuing.

The ATO investigation is a multi-agency operation that includes over 20 Federal, State and Territory government agencies, including the ATO, Australian Securities & Investments Commission (ASIC), Department of Employment, and the Fair Work Ombudsman. The ATO is using sophisticated data matching tools to identify suspected illegal phoenix operators.

What are potential warning signs of phoenix activity?

The ATO has listed the following as potential warning signs:

  1. Employees not receiving a payslip
  2. A company’s ABN and name changing while phone and address details remain the same
  3. Superannuation or other employment entitlements are not being paid
  4. Employees are paid late, or a reduced wage, or less than the minimum wage
  5. Pay slips show a different employer name that varies from the original or actual employer name

It is important to deal with business problems or liquidation in a legal manner. Calibre’s business advisors can help you manage and mitigate your company issues in a way that meets all regulations and keeps within the bounds of the law. Phoenix activity can be common. We work with the best and most reputable liquidators, who have solid connections with the tax office, in order to bring you the best results when restructuring or liquidating your company.

Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.