The most contentious area of horse taxation is whether the breeding
and/or racing activity is an income tax "business" or GST "enterprise".
This is so as many people register themselves or related entities (e.g.
companies) for GST when they are clearly ineligible "hobbyists" and not a
proper GST "business".
If on an ATO audit this is found to be
the case, the GST registration is revoked, refunds clawed back and hefty
penalties often result, not to mention the potential ongoing scrutiny that may
result in relation to the rest of the person's tax affairs. Ouch!
Accordingly, when our office finds out that the ATO are conducting a special
audit project on ABN/GST registrations, we get it out there as soon as
possible.
By way of background, The Australian Business Register (ABR) receives around
80,000 ABN registrations applications a month. Around 91% of these applications
result in registrations being issued on the spot, and the main reason ABNs are
not issued for the others is a failure to establish the identity of the people
behind the business.
The amount of monthly ABN registrations is high and the ATO want to ensure they
are being issued when there is a proper entitlement, i.e. a "business" is being
conducted.
The ATO have worked with the Australian Bureau of Statistics to pick a
representative sample of around 1,400 recently issued ABNs so that they can
review their ABN entitlement.
These reviews will inform future focus areas to reduce the number of people
applying for and receiving ABNs when they are not entitled.
The reviews will focus on ABNs issued for individuals, partnerships and trusts
in August and October 2016. If you applied for an ABN via your Accountants during
this period, they may be contacted and required to provide evidence that you
are running a business or taken steps to start a business.
I think it's reasonable to speculate that if the ATO find many wrong
registrations during this review, their audit activity will escalate in this
area.
The message is clear – if you've registered a horse related business recently,
or about to register, make sure you seek proper advice as to the "business"
status of your activities!
Prepared by:
Paul Carrazzo CPA
Carrazzo Consulting CPAs
801 Glenferrie Road,
Hawthorn, VIC, 3122
TEL: (03)
9982 1000
FAX: (03) 9329 8355
MOB: 0417 549 347
E-mail: paul.carrazzo@carrazzo.com.au
Web Site: www.carrazzo.com.au