To minimize your exposure to the experience of the taxation office looking into your business dealing we would suggest the following strategy:
- Consider a process where you are able to reconcile the sales of the business to invoices issued or till reads.
- Create an audit trail of steps between the sales and the amount banked. Often we find there is a difference between sales and the amount bank which remains unexplainable after adjusting for amounts still owed to you. The tax office will often regard this as cash you have taken from the business and not paid tax on, and this is what they are looking for.
- Ensure the KPIs of your business sit within the range of business KPIs as published by the Australian Tax Office. Where your business sits outside the range on a KPI ensure you have an explanation as this is which they are looking for.
- If you produce a product ensure you can account for the production level in the sales figure. The people that work for the tax office these days are good at their job and will soon be asking “ if you produce “X” quantity of a product where is the income?
We find many small business take cash from the business and then use it to buy legitimate items of expenditure but if you unable to substantiate the expenditure you may find they consider you have taken cash from the business.
People who take cash from their business will often buy things with it, which very easy to find in a taxation audit.