According to ATO figures, there is currently 19.5 billion dollars in outstanding tax debt owing and of that 75% is from small business.
Yes, that is a very large figure, and yes too much of that represents small business. I am a registered tax agent, and I deal with the ATO on a daily basis discussing these debts. But more importantly I represent small business clients that are struggling to pay these debts; I meet with these people who are struggling to feed their families and keep a roof over their head.
I represent people who have had complete mental breakdowns over their financial situation and sadly I represent people who found dealing with ATO debts all too hard and ended it all.
This week I attended the ATO open forum for tax and BAS agents in Beenleigh. There were roughly eighty agents there to listen to the tax office’s new approach to dealing with stakeholders, a great idea in theory. The staff from the ATO were all of a director level, from different departments with the 2 of most interest being debt and compliance.
It has been my experience with the ATO in roughly 60% of cases when dealing with debt and payment arrangements that there is no consistency in applying the ATO’s policy. The staff push very hard to get the debt paid off in unrealistic time frames, force taxpayers into payment arrangements they can’t meet which then puts them in a worse position than they were before.
So when dealing directly with the tax office, I will simply advise I will call back, hang up and ring straight back hoping to get someone more helpful. Surprisingly this issue came up from agents in attendance, and all representatives from the ATO were shocked to know this was going on, they simply did not realise it was this bad? Every agent in the room had many stories of this happening for many, many years.
The tax office acknowledged the idea of a 90-day pay cycle for small business, but at the end of the day, they simply didn’t care. The representative from debt told us all off for not getting out clients to pay off their debts and happily referred to herself as the ‘Queen of Director Penalty Notices and Garnishees’, not something many people in the room were impressed by. But clearly showed why there is a major problem with the debt department’s attitude towards small business taxpayers.
The question is why you should be concern about this forum?
- Small business owes the most amount of debt and government needs money. Small business has a target on its back, and the ATO believes you are the easiest people to collect a debt from.
- Big business controls money and legal resources; the ATO simply won’t waste time on chasing them as they have money and will simply use it to tie the ATO up in court. A comment made by the representative during the morning tea break. You simply have to look at the deal Uber has struck with the ATO to know this is true.
- Credit reporting, as from the 1st July 2017 the ATO will begin reporting the debt to credit agencies. The guidelines released so far are any business with an ABN that has an outstanding debt of more than $10,000 for 90 days or more, that has not ‘effectively’ engaged with the ATO.
The issue of credit reporting by the ATO has been the subject of some articles in The Australian and again, in theory, is a good idea. However, when asked at the forum how this would be implemented we were advised they are still working on this and more information will be available at a later date.
This is to be implemented in 4 months and may have a major impact on people’s lives, and to date, the ATO can’t provide any more detail. When you have a collections department that cannot adhere to policy at least 60% of the time how can you possibly implement something in 4 months when you don’t know how exactly you are going to do it. This is of great concern.
The final issue is that of ‘Sham Contracting’, the process of engaging a worker under an ABN or other business structure that should be an employee.
These arrangements are normally forced on people to get that job and result in many issues; people having no super to retire on, people missing out on their legal entitlements under fair work such as annual leave, sick pay and minimum wage, no Workcover and more importantly tend to create more ATO debt which is likely to be unpaid.
It also creates an unfair playing field for employers and business doing the right thing; you are less competitive because your labour costs are higher.
Superannuation compliance is an area the ATO are very active in, however, not always to the success of the employees. The Superannuation Act is very clear about how super works;
- Employees must be paid 9.5% super on their ‘ordinary times earnings.’
- It must be paid by the due date 28th of the month after quarters end
- If super is not paid on time, no tax deduction can be claimed
- Any unpaid super carries directors liability
This is great for every employee out there who can get work as an employee and is actually paid their super, but how does it help the ‘Sham Contractors’. Well the Superannuation Act has a couple of things to help;
- If you are a sole trader ABN and only working for one person in simple terms, you may you fall under the definition of an employee under this Act, and you too should be receiving super.
- However, at an entity to entity-level, the Act is also great in theory it has a section which allows the ATO to ‘lift the corporate veil’ and look at the true nature of the relationship. If it is deemed to be a master-servant type relationship then super too may also apply.
At the forum, the ATO representative was also quizzed on this issue and simply replied yes that’s true, but there’s not a lot we can do. This at the end of the day is the issue legislation enacted to protect rights and make it an even playing field for all businesses, but this does not seem to be applied.
It seems the more you engage with the ATO, the bigger target you become because big fish fight too hard.
It is my true belief now more than ever, that this department cannot be judge, jury and executioner as they simply rule with an iron fist. It must be split and be forced work efficiently and work for the best interests of the community as Tax Agents are ethically bound to do so.
Tax debt is a number but there a person with a life behind it that must be taken into account every time. If the ATO actually work with small business, the largest employer in the country, and truly make it a fair playing field, business will be able to prosper and pay debt on time.
It is often said that every action has an equal reaction at this point this is not true of the small business environment.