Are you paying the correct amount of Tax?

What does the tax office look for in assessing whether a professional business owner is paying the correct amount of tax? That’s a very good question, and welcome to CIB Accountants. The answer to this, the ATO will assess the business professional through three benchmarks.

1. Benchmark number one is, is the professional and anyone related to them paying 30% or more in tax on the income the business professional generated? By anyone, that’s the business owner, their spouse, their child, their company, their family trust, etc. So in the case of the income the business professional earned, did they pay 30% or more tax on that income, regardless of who it went to?

2. Benchmark number two is in relation to the business professional and the test is, did that business professional include 50%, half, 50% or more of the net income they earned during the year in their business in their personal return?

3. The third business benchmark compares the business professional to an equivalent employee in their business or in another business, and it says, “We’ll look at the salary that is earned by that employee, either in their business or in another comparable business, and did the business professional pay themselves that equivalent salary or more?”

It’s interesting to know that you only need to meet one of these three tests, so as soon as you meet one of these, you’re considered a low risk from the view of the ATO. If you’d like to find out more information, please email us via ask@cibaccountants.com.au.