Tax Compliance & ACA: Essential Knowledge for Business Owners - Essay Sample

Introduction

This letter is written for the purpose of informing you about tax compliance and all relevant tax issues. It is essential to know that every business in Australia should register with the Annual Compliance Arrangement (ACA). The ACA crucial helps to manage the compliance of your business in a very open and transparent manner. The beauty of registering with the ACA is that it will help you to resolve law and policies that are related to taxation laws in Australia. All business owners should be aware of all tax issues early to avoid costs that may occur and other tax disputes, which will affect business operations. Every small business in Australia plays a vital role in the tax system (Woellner, Barkoczy, Murphy, Evans, and Pinto, 2010). For instance, Bush Furniture is a small business, and it is, therefore, important for Joe and Mary Wilson to identify the particular tax issues related to their business and understands all resulting implications.

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Bush Furniture is required to report their activities. This can be done every month or once per year. This report is crucial because it gives a report used for the payment of goods and services for businesses in Australia. The financial year for taxation purposes in Australia starts in the month of June and it is important for the Bush Furniture to file an income tax return during this time. Because Joe and Mary Wilson operate their business as one person, they should declare all income as personal income tax to avoid complications (Woellner, Barkoczy, Murphy, Evans, and Pinto, 2010).

As Bush Furniture, the Australian Tax Office will require you to report all your business activities (Woellner, Barkoczy, Murphy, Evans, and Pinto, 2010). Using the Australian Business Number, the tax office will send the report automatically when the time to lodge the tax is due. It is important for the Bush Furniture to lodge the report before the deadline. It is important for Bush Furniture to enter into the Tax Australian Compliance arrangement. Your business is required to write two documents namely; (a) a tax governance letter and (b) terms of the arrangement (Brabazon, 2019). The governance letter is a framework that confirms that the business is in line with better practices as outlined by the government in Task Risk Management and Governance Review Guide. This document will show that your business has good tax risk management procedures that are in line with the guide. It will also show that the business is willing to work together with the Australian Taxation Office in establishing the ACA and engage the office throughout the terms of the ACA. The letter indicates the commitment of the Bush furniture in identifying and disclosing all material transaction and risks in the business.

The terms of arrangement will establish the general operating and relationship terms between the government and the Bush furniture. It will contain among others a written record of details of the Bush furniture's representatives including the steering committee, the roles of the steering committee in the joint governance of the ACA and written commitments as provided under the ACA, for example, the governance letter. To ensure the arrangement runs smoothly, the terms of reference will have detailed information on such areas as settling of disputes and obligations of each party to ensure a transparent environment.

Requirement for Taxation Documentation

There is no set period for running an ACA but very often in typical cases takes three years. The ACA is maintained based on the financial year, for the tax that requires to be returned every year. Other taxes are managed periodically from the time of entering into the arrangement. The taxation office helps in tailoring the arrangement for businesses to ensure smooth operations between the two parties. During the ACA, Bush furniture will be required to disclose all material and risks involved in their business (Woellner, Barkoczy, Murphy, Evans, and Pinto, 2010). Therefore, the business will have to disclose all activities.

The Bush Furniture will be required to maintain the governance process and notify the tax office of any changes made in the business such as the new business being opened. Besides, it must maintain its tax lodgment responsibilities for a transparent working environment in resolving risks. This will include information on foreign losses and gains under the provisions of the forex measures and the tax law. However, the losses and gains will not be deductible under the forex measure if they arise from the sale or acquisition or disposal of capital assets or acquisition of depreciating assets where the time between acquisition or depreciation and payment is less than 12 months (Woellner, Barkoczy, Murphy, Evans, and Pinto, 2010). In this case, the tax will be taxed under the underlying asset. Therefore, it is essential to disclose all expenses and costs incurred by the business. If the tax agent to be contracted by Bush furniture lodges tax returns electronically, they are required by law to fill the Partnerships and trust rental property schedule 2018. Where a paper version is to be used, the schedule is not to be filled if item 9, Rent, is completed (Brabazon, 2019). The taxation office is currently using a technology that matches information to verify the correctness of returns filed.

Recommendations

Bush Furniture will have to register its details with the Australian Business Register which keeps a detailed database of information about businesses. An identification number will be given and information entered will be regularly updated using the information from lodged tax returns. Where the law permits, the information may be passed on to other agencies. This is to validate or update their databases. Therefore, the Bush Furniture should ensure correct information is given on its tax returns. Some claims made by the business entity might be subject to scrutiny by the taxation office which includes; distributions from partnerships and trusts, total salaries and wages paid against the pay as you go withholding system, interest, and dividend income, and credits claimed by the business. Bush Furniture will also be required to clearly state their primary objective in engaging in business to identify it as distinct business or a hobby. The law has clearly outlined various factors to consider in selecting distinct business activities that include; a significant commercial purpose, activities undertaken with the sole intention of making a profit and an activity that is planned, organized and carried out in a business manner among others.

Based on the infrastructure established for effective implementation of taxes on businesses in Australia, Bush Furniture is required to provide all the required information and commit itself to work with the taxation office by giving ongoing disclosures and giving out the correct information. This will avoid penalties and charges that may be detected through the use of the information matching technology as well as create a good public image to attract other businesses and agencies. It is important for Bush Furniture to keep a record of all business transactions for taxation. Subsection 262A (2) of the ITAA 1936 describes all the information that should be provided including any documents relating to income and expenditure and all documents relating to election, estimate, determination or calculation made by a person for taxation purposes (Brabazon, 2019).

References

Brabazon, M. (2019). International Taxation of Trust Income: Principles, Planning, and Design. Cambridge University Press.

Woellner, R. H., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2010). Australian taxation law. CCH Australia