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BIG change must happen to ATO says government report

Wednesday, March 03, 2021

The Federal government’s small business agency, the Small Business Ombudsman, has called for major changes to the way the Australian Taxation Office operates. The Ombudsman, Kate Carnell, says “… the time is right for Government to deliver a [tax administration] system that suits the small business sector…”

We totally agree. The ATO’s approach to small business is bullying, unfair and oppressive. We’ve been highlighting this since around 2012 and have been calling for major change. See our 20-minute video.

The Ombudsman has recommended 25 specific changes to the operations of the ATO. (See pages 6-8 of her report released today.) The recommendations are practical and sensible. The one we highlight as top of our list is Recommendation 21. This says:
ATO to be prohibited from charging penalties and interest, issuing garnishee notices or instigating other recovery action on tax debt … until all avenues of appeal taken by the small business taxpayer are exhausted, with general interest charges (GIC) to be applied only from that time.
This is sensible, totally fair and hugely important. And it comes within the context of a big increase in small business tax debt to $21 billion during Covid.

But it’s essential to be clear about what this tax debt actually is. It’s made up of (a) tax actually owed, (b) interest and (c) penalties the ATO adds on. The ATO has continually refused to give the split of these items in reply to parliamentary questions. But here’s just one case as an example.

A small business that we’ve been working with for many years has a tax dispute over
$83,576 the ATO says is owed (over 2 years).
The ATO has added
$41,788 in penalties and
$99,600 in interest (approx.) to today’s date.
That is, the ATO says around $225,000 is owed. The dispute and appeals process has been ongoing for seven years.

However, if the Ombudsman’s recommendation were applied, the actual debt would be $83,576.

This highlights how important Recommendation 21 is. It is a reform which would produce an honest reflection of the truth of the actual tax debt.

In other words, the ATO’s approach to tax debt is, in our view and experience, shonky and misleading. In the case outlined above the real tax debt is only 34 per cent of the ATO’s claim. On this basis the ATO’s headline-grabbing ‘$21 billion’ of small business debt would really only be $7 billion. The point is that we need facts and truth, not misleading media-grabbing headlines.

The Ombudsman’s Recommendation 21 would push toward the truth and make ATO debt management fair and much more efficient. Did we say that we support the Ombudsman in her efforts? Well clearly we do. We’ll produce a more detailed commentary soon.

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