ATO strategy update: small business and individuals
While providing a recent strategy update, Mr Jeremy Hirschhorn, Second Commissioner Client Engagement Group, signalled the ATO’s intention to close the small business and individual tax gap and increase engagement in these sectors. It is touting early engagement and digital improvements as a way of reducing the significant growth in the ATO’s collectable debt book which occurred during the COVID-19 pandemic. Measures include issuing awareness letters and taxpayer specific messaging during lodgment to allow for self-correction.
Speaking at a conference, Mr Jeremy Hirschhorn, Second Commissioner Client Engagement Group delivered an update on the ATO’s strategic focus areas as well as improvements that the ATO has been making over the past few years to keep up with the digitisation of many processes. While Mr Hirschhorn noted that many businesses are doing the right thing and paying their fair share of taxes, in particular the larger companies “supported by special funding under the Tax Avoidance Taskforce”, the focus is now turning to smaller businesses and individuals.
Tax gap
According to the ATO, small business across all types of taxes represents as much as $15 billion of the total $33.5 billion tax gap. This appears to be a combination of deliberate avoidance (i.e. being a part of the shadow economy), simple mistakes by a large number of small businesses, and non-engagement with debts. This lack of engagement by small businesses is said to have caused the ATO’s collectable debt book to grow significantly during the COVID-19 pandemic.
While the ATO has taken a relatively relaxed position to debts of small businesses thus far, it is now “looking to normalise [the debt book] over time”. This acknowledgment, coupled with previous news that the ATO has resumed collecting aged debt can only mean that debt collection activities will be ramping up further in the coming months as evidenced by recent collection activity.
Early engagement
With this increase in activity as well as potentially recommencing audits, the ATO will be seeking to engage with taxpayers earlier and more transparently. It points to the recent issuance of 30,000 awareness letters for disclosure of business tax debts, and 52,000 awareness letters about the use of director penalty notices, which have prompted more than 20,000 taxpayers to respond and enter into payment plans worth around $4 billion.
In addition to early engagement, a digital improvement that the ATO has made to help small businesses avoid mistakes in the first place is real-time prompts. For example, GST reporting now incorporates client-specific messaging before the lodgment of an activity statement to allow for self-correction. Through this system, the ATO has assisted taxpayers to correct their GST reporting with adjustments of around $73 million.
Areas of focus
In relation to individuals, the over claiming of work-related expenses was a concern for the ATO. Again, this involved both deliberate over claiming using creative methods and mistakes such as being overly optimistic about what is allowable. Property investment also remains an area of ATO focus. Mr Hirschhorn noted that there was a “spectrum from true investment properties through to holiday homes which are occasionally let out in the low season (or listed on Airbnb at exorbitant rates just for show)”.
To address this, Mr Hirschhorn outlined the ATO’s strategy of sharing data with taxpayers before lodgment to avoid mistakes happening in the first place, while also attempting to obtain data from third party sources where the “intrusiveness” of the request is outweighed by the tax gap it is trying to tackle. With this in mind, in areas such as rental properties where there is significant non-compliance, the ATO has a “high appetite to obtain third party data”.
What's next?
While tax compliance activity during the pandemic has been relatively quiet, it appears that the ATO will be stepping up their audit and debt collection activities, as well as focusing on key areas to eliminate the tax gap.
Whether you are an individual or small business, if you need help with any aspect of tax compliance, tax audits or your tax legal position, contact us today for expert help.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.