Like many areas of business, tax collection is set to be digitally transformed in a move that’s unlikely to be universally welcomed, writes Nigel Bowen.
When the current Australian Tax Commissioner, Chris Jordan, stepped into the role in 2013 he vowed to go after those who were gaming the system.
And while he’s committed to having large companies pay their fair share of tax. Jordan has also made it clear that it’s not just big businesses in his sights.
Speaking to INTHEBLACK shortly before COVID-19 hit, having taken measures to make sure big business was doing the right thing, Jordan was now determined to ascertain both small business owners and employees were doing likewise.
He pointed out that both SME owners and employees were claiming a suspicious amount of work-related expenses.
Referencing figures for the 2014-15 year, he observed, “When you get $21 billion claimed as work-related expenses, that’s a big pot of money, so there’s got to be a bit of playing around”.
Jordan’s stint as Australia’s head taxman will end in early 2024, but before he departs, he’s determined to bed down a ‘tax just happens’ system that leverages technology to make sure everybody — big business, small business and employees — is paying the correct amount of tax.
Prepare for a post-pandemic crackdown
The business-shuttering lockdowns of the pandemic meant that, rather than using sophisticated technology to collect more tax from Australian businesses, the ATO had to be more understanding than usual about businesses delaying payments they indisputably owed.
Now the pandemic is over, the Federal Government and, by extension, the ATO find themselves in a challenging predicament.
Even prior to the pandemic, the voters’ enthusiasm for expensive government programs such as the NDIS, combined with their reluctance to pay Scandinavian-level tax rates to fund such programs, meant both Coalition and ALP governments faced challenges balancing the country’s books.
A global pandemic derailed the Coalition’s attempt to get the national budget back in the black.
Accordingly, the Federal Government expects the ATO to aggressively minimise tax evasion and avoidance.
For example, the recent Budget included measures to raise an extra $4.7 billion over the next four years, chiefly through better targeting of tax-dodging businesses.
“Tax Administration 3.0” to arrive by 2030
Two recent speeches, one delivered by Jordan and one by his 2IC, paint a picture of what the post-pandemic, ‘tax just happens’ world will look like for taxpayers.
On 8 September, Jordan delivered a speech entitled ‘Why tax can’t “just happen” without you’ to tax industry professionals.
The Commissioner informed the audience, “Last week our executive group endorsed a new digital strategy which has a vision for the ATO to be fully digitalised by 2030… The OECD’s Tax Administration 3.0 is our vision for 2030, where seamless, integrated, and automated systems allow data to flow from the systems taxpayers already use, to ours”.
How is data going to flow from an SME owner’s bank accounts, accounting software and super fund to the ATO? As Jordan flagged, that’ll occur by putting in place the digital infrastructure and laws required to facilitate the “seamless” and “automated” transfer of Australians’ financial data to the ATO, ideally in real time.
“The first principle [of ‘Tax just happens’] is ‘Leverage natural systems’… we want businesses and their representatives to be able to interact with us through the software or tools they are already using to run their business and manage their finances… when we build reporting and payment mechanisms into the systems people already use, we are making it easier and simpler for them to comply… the world is changing – and at the ATO our goal is to not just adapt to it, but to embrace the opportunities that come with it.”
Anyone who’s ever been pinged for failing to declare $20 of interest will be aware that the ATO has access to their financial data. But, in an increasingly digital and cashless world, it’s never been easier for tax authorities to track every cent an individual or business is earning, investing and spending.
Putting an end to dodgy deductions, undeclared income
On 20 October, ATO Second Commissioner Jeremy Hirschhorn addressed the Tax Institute’s Tax Summit 2022.
Hirschhorn began by noting that there were some significant “tax gaps” due to a “lack of common community understanding” about, for instance, “what an allowable work-related expense claim is, telling attendees that “many claims are an optimistic characterisation of personal expenses as work related”.
According to Hirschhorn, illegitimate claims were costing the ATO $4 billion a year. He also noted that another big tax gap arose from “omitted income, particularly cash wages and income from the sharing economy”.
“The small business market has always represented a high proportion of the overall tax gap
“Our most recent figures estimate it to be over $12 billion of the overall $33 billion tax gap… A significant component of the overall ATO debt book belongs to small business – 65 percent in fact.
“It represents over $24 billion of the over $37 billion collectable (i.e., not disputed) debt.”
Hirschhorn encouraged tax professionals to warn their clients against soldiering on with zombie businesses.
“We have done fewer audits of small business and individuals, chased fewer lodgements and recovered less debt,” he said of the pandemic era.“As a result, the total of taxes owed has increased from around $39 billion in January 2019 to almost $61 billion as of January 2022… [the ATO has a role] in helping struggling businesses understand that they should move to finalisation of the business rather than struggle on as ‘zombie businesses’… our analysis shows a strong pattern of clients who are missing multiple obligations are also at high risk of trading while insolvent.”
The double-edged sword of digitisation
‘Doing your tax’ has long been a tedious, time-consuming, and expensive exercise for small business owners.
But the fact the ATO will soon be doing Australians’ taxes for them will be seen as a double-edged sword by many.
On the positive side, digitising tax processing will free up time and reduce or possibly even eliminate accounting expenses for some business owners. However, it’ll also result in many of them paying more tax, especially if they have been less than scrupulous previously.
However, it’ll also result in many of them paying more tax, especially if they have been less than scrupulous previously.
“As a result, the total of taxes owed has increased from around $39 billion in January 2019 to almost $61 billion as of January 2022… [the ATO has a role] in helping struggling businesses understand that they should move to finalisation of the business rather than struggle on as ‘zombie businesses’… our analysis shows a strong pattern of clients who are missing multiple obligations are also at high risk of trading while insolvent.”