ATO Resumes Business Audit Activity
In response to the pandemic, the ATO has held back on conducting as many ATO audits on businesses.
Also, in response to the pandemic, the Federal Government has injected billions of dollars into the Australian economy. In fact, this financial year, the federal deficit is forecast to surpass $213 billion. Gone is the Government’s pre-virus pledge to get the budget back to surplus and pay off the nation’s debt within a decade. Now, the Government forecast net debt will reach nearly $1 trillion by 2024, or 44 per cent of GDP. “This is a heavy burden, but a necessary one to responsibly deal with the greatest challenge of our time,” Mr. Frydenberg said in his budget speech.
Role of the ATO
The Treasury and the ATO are joint stewards of Australia’s tax system and aspects of Australia’s superannuation system.
The ATO’s role is to effectively manage and shape the tax and superannuation systems to support and fund services for Australians.
In this role, the ATO administers the tax law and key elements of the superannuation law and provides advice to Treasury to support the development of tax legislative measures.
In a speech on 29 October ATO Deputy Commissioner of Small Business, Deborah Jenkins announced the ATO will be resuming its compliance activity on small businesses. Small businesses are a very diverse group. The ATO define small businesses as those below a $10 million turnover, there are 4.2 million of them, nearly 6.3 million when we include associated entities
Ms. Jenkins said “Over the coming year we will drive better compliance through the way we engage with, educate and support small businesses, by returning to work programs that address key risks. We will also continue to take a sensitive approach, acknowledging the varied impacts of the current environment on businesses.”
The ATO estimates only 4% of the taxpayers reviewed are deliberately engaging in shadow (or black) economy behavior. But this group (together with a cohort of business owners who operate entirely outside the tax system) are responsible for around 56% of the value of the small business income tax shortfall or around $6.7 billion. For this reason, the ATO will continue to have a heavy focus on the cash economy.
In addition to the black economy, there is still over a further $5 billion small business tax collection shortfall as a result of behaviours other than deliberate shadow economy behaviour. This includes:
- Honest taxpayers making mistakes or being confused about their obligations.
- Businesses without proper record-keeping systems in place.
The ATO believes a fair component of it is opportunistic behaviour. Therefore, it is understandable given this combined tax shortfall exceeds $11 billion the ATO will focus its efforts here to support the Australian economy which is forecast to have net debt of nearly $1 trillion by 2024.
ATO Risk Focuses
While the ATO will continue to assist all small business taxpayers through COVID a key focus will be maintaining the integrity of the tax system throughout the crisis, and in the aftermath. Given the recent stimulus, the federal government has put into the economy the ATO plays an important compliance role for the federal treasury to ensure there is not a shortfall in income tax and GST collections.
The ATO will be resuming its review and audit programs. They will continue to use the Taxable Payments Reporting system data to check that contractors in a range of industries are lodging and meeting their income tax and GST obligations in full. Use of Taxable payments and annual reports (TPAR) data is being used extensively to match payments reported by payers to contractors (payees) income tax returns to ensure no income has been omitted.
This data matching is currently being extensively used in respect of 2019 tax returns for taxpayers in the cleaning, courier, and building and construction industries. Where errors are detected, commencing November 2020, the ATO will be contacting these taxpayers either directly or via their tax agents for a further explanation.
In addition to the above the ATO is also undertaking the following important risk assessment activities:
- Closely monitoring loss claims and unreported fund extraction from small business companies
- Overhauling their GST high-risk models to enable them to more effectively detect and action high-risk GST refunds
- Ensuring taxpayers remain in the tax systems by actively following up outstanding tax and BAS Lodgements
- Future focus on digital and data
Now is an appropriate time to review how you are reporting your tax-related payments and other obligations to the ATO. Should you be unsure of how to calculate or report any of your obligations to the ATO please call our office on (02) 4353 2333 to discuss your concerns further.