Small businesses that are established and run in a business-like way deserve certainty about their tax situation and consistent, fair ATO treatment which reflects an Australia Inc mindset. said Micheal Croker, Australian Tax Leader at Chartered Accountants ANZ.
He said some good can come from the harrowing taxpayer stories in the program if new, smarter ways can be found to address the issues identified.
Australian Business Number eligibility
“The business start-up phase is critically important yet accountants see many problems at this stage.”
Mr Croker noted that an ABN isn’t an entitlement: it’s a licence granted by the community which comes with tax entitlements and obligations.
That said, there is obvious room for improvement.
Chartered Accountants ANZ’s pre-Budget submission recently put to the government a ‘ready to start business’ model, with assurance from an accountant that the proposed business structure complies with ATO guidelines, a business plan exists, financing is in place and cash flow modelling done.
“We think this model could be implemented as part of the proposed enhanced Australian Business Register.”
The gig economy
For gig economy workers, Mr Croker said there could be recommendations in the unpublished Final Report of the Black Economy Taskforce which might help address the issues raised by Four Corners, and he urged the government to release and respond to the report by Budget night.
“There has long been a need for greater up-front certainty on the employer v’s contractor status of the organising entity and the flow-on ABN eligibility for workers who choose to provide their services in the gig economy.”
“The same goes for labour hire organisations”, Mr Croker said. “But policy wise, the best solution may be to expand business to business contractor reporting to the ATO and even consider a withholding tax on contractor payments.”
Small business tax debt
The latest ATO Annual Report says that at 30 June 2017, small businesses owed nearly $13.9 billion in collectable tax debt, an increase of 7% from last year (accounting for around 67% of total collectable debt).Such high levels of tax debt can’t be tolerated and there are clearly cases where the ATO must act using the full extent of its powers. Phoenix operators are an obvious example.
From a tax policy perspective, Mr Croker said it was time to revamp the PAYG instalment system so that small business puts aside adequate funds to pay tax.
“Technology advances since the PAYG instalment system was first introduced mean improved tax collection models should be developed. For example, business software is now capable of tax-adjusted quarterly instalment calculations in real-time.”
There have been concerns expressed by regulators for some time now about the eligibility and veracity of some R&D claims.
We also hear member feedback that some officials are adopting aggressive positions, adopting the view that in some industries there is little scope for further innovation.
“The unsaid issue underlying all of this is the uncapped nature of the R&D tax expenditure and the impact of excessive claims on the government’s bottom-line.”
“Chartered Accountants ANZ notes the Treasurer’s recent comments that R&D will feature in the Budget and look forward to an improved framework that addresses not just the design of the R&D incentive, but also the manner in which it is administered.”
The ATO’s powers
Mr Croker said many Chartered Accountants would agree with sentiments expressed on the Four Corners program about the ATO’s powers, particularly their impact on individuals and small business operators.
“Where a taxpayer is trying to do the right thing in a complex, self-assessment tax system, heavy-handed approaches can jeopardise what should be a good working relationship with the ATO.”
Mr Croker said the Four Corners program would no doubt generate discussion about the use of garnishee orders and whether adequate safeguards exist.
“Most tax jurisdictions allow for garnishee orders. They protect the tax base and are a blunt but highly effective instrument to get taxpayer engagement.”
Mr Croker urged the ATO to respond to some of the obvious questions raised by Four Corners:
- How much taxpayer contact occurs before a garnishee order is made?
- What is the decision-making process and are decisions signed-off at senior levels within the ATO?
- How does the ATO seek to avoid undue hardship and allow for the taxpayer’s day-to-day personal and business expenses to be met?
- How are taxpayers notified about the garnishee order and are they allowed time to sort things out before funds are taken?
For taxpayer penalties, Chartered Accountants ANZ’s pre-Budget submission favours new approaches for individual and small business taxpayers, such as:
- A “points” penalty system (similar to the road rules) to provide taxpayers with second chances.
- Better recognition of taxpayer early engagement and co-operation.
- A ‘stop the clock’ approach where an accountant has been engaged to help resolve problems.
- Lower general interest charge and shortfall interest charge rates (current settings are overly punitive).
A revamped Taxpayers Charter would also be welcome.
The David and Goliath nature of dealings with the ATO also raised questions about the fairness of the Australian Labor Party’s proposal to cap tax deductions for tax agent fees.
The big picture
Mr Croker concluded by saying it was important to put the Four Corners report into perspective.
“There will always be difficult situations arising from the tax collection process. Our society depends on the taxes the ATO collects and it is vital our tax regulator enjoys high levels of community trust and confidence. Nor should any unprofessional taxpayer interactions by a few tarnish the good reputation of ATO officials generally, many of whom are Chartered Accountants committed to the ethical standards of our profession.”