Date posted: 30/06/2021

New tax report provides glimpse into Australia’s rising tax debt

The Inspector General of Taxation (IGOT) report released today provides much-needed granular insights into Australia’s tax debt with tax debt levels expected to rise even further due to the pandemic, says Chartered Accountants Australia and New Zealand (CA ANZ).

The report, which investigated undisputed tax debts in Australia by composition such as type of taxpayer, industry and tax type, provides a glimpse into the extent of the tax debt as well as the Government’s collection process and support.

“With COVID only affecting the last few months of the 2020 financial year, the substantial increase in tax debt still has much further to rise,” said CA ANZ Senior Tax Advocate Susan Franks.

“Collecting this tax debt as economic conditions improve will be an important and delicate task. Government support for businesses and individuals affected by COVID has included cash handouts but delayed debt collection.” 

A surprising finding was the remarkably small proportion of taxpayers that have very large tax debts. For individuals, 1.22% of accounts owed 43.44% of collectable debt and the average debt per account for these individuals is $2,137,015.

For small businesses, 6.43% of accounts held 57.13% of collectable debt and 0.14% owed 11.63% of collectable debt worth $2.51 billion or an average of $1,263,422 per account.

“Further investigation of how and why such large undisputed tax balances have accumulated should be undertaken,” said Franks.

“With more turning to the gig economy to make ends meet, it is concerning that small businesses account for the largest component of collectable debt (between 63% to 67%) which is approximately 3 times its taxpayer population.  

“Making the calculation and payment of tax easier and more timely for small business should be a priority.”

CA ANZ supports the report recommendation that the ATO actively promote the benefits of new businesses voluntarily entering the PAYGI system and making it easy to do so.

“Starting a new business is hard and making sure you are providing for and paying the right amount of tax is made harder by the pay-as-you-go instalment system.

“The system does not kick in until you have lodged your first income tax return which can be 12-18 months after you started your business and can result in two years of tax becoming payable.”   

CA ANZ supports the recommendation that there be enhanced reporting in relation to the ATO’s debt book and debt recovery activities on an ongoing basis.  

“This should encompass not only undisputed tax debts which are the subject of this report, but also debt that is deemed uneconomical to pursue and debts where the ATO has exercised its power to defer payment of the debt, as both these types of debt fall outside of the IGOT’s report,” said Franks.

“Appropriate collection of tax debt is important to ensure that tax rates/bases do not need to be increased inappropriately and businesses and employees compete on a level playing field.”

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