Commissioner of Taxation Chris Jordan has called out “unacceptable” behaviour from some small business operators that continue to avoid their tax obligations, saying there is “no licence to not pay tax” in Australia.
Speaking at The Tax Summit on Thursday, Jordan addressed the $33.5 billion in unpaid tax due in the 2018-19 financial year, reported last week.
Of that, some $12.5 billion was attributed to small businesses. That’s 12.7% of the total tax that should have been paid by these operators.
A further $814 million is owed by medium-sized businesses, representing 6.2% of the total.
The report attributed $2.6 billion of the missing tax to large corporate groups; about 4.3% of the total they should have paid.
In total the $33.5 million gap represents 7.3% of the tax owed for the 2018-19 financial year in Australia.
The statistics refer to the 2018-19 financial year, but were released in the ATO’s latest annual report. Estimates for the tax gap in the 2020 and 2021 financial years are not yet available.
Responding to questions on the tax gap after his speech, Jordan said the ATO has invested a lot in tracking the large corporate market.
On the small business side, he said the ATO’s ‘Black Economy Taskforce’ has been working on educating business owners, particularly those who operate in cash and off the books, in their tax obligations.
It is difficult to know where those businesses stand, tax-wise, he noted.
“You might be remitting something but not a lot, you might not even be in the system,” he said.
“It does impact on businesses that do pay tax. So it’s unacceptable.”
In his speech, Jordan said one of the main focuses of the ATO this year will be “improving tax performance” among small businesses.
That will include offering business owners practical support and software to help get their filings right the first time.
“Successful small businesses, even in a recovery phase, are the ones that keep good records, use technology to run their business, and have regular contact with their tax or business advisor,” he said.
Later, he again urged businesses to “go digital”, suggesting that if business owners keep better records, they will “know better”.
“There is no licence to not pay tax,” he stressed.
“Everyone who makes profit, makes taxable income, needs to pay tax.
“We have a good country, we are lucky with our services. But everyone’s got to contribute to that.”
While Jordan acknowledged that the 2020 and 2021 financial years have been hard on SMEs, he did not speculate as to what the tax gap for the 2020 and 2021 financial years might look like.
During the COVID-19 shutdowns in 2020, the ATO paused its tax debt collection activities, racking up some $34.1 million in outstanding collectable debt.
In September 2021, it again paused some of its ‘firmer’ debt and lodgement activities for businesses that have been particularly badly affected by the latest lockdowns, but stopped short of pausing debt collection altogether.
The report noted that the impact of COVID-19 on the size of the small business tax gap will start to become evident next year, when the 2019-20 figures are reported.
A spokesperson from the ATO said it is too early to comment on what trends we can expect to see in the 2020 and 2021 tax gap figures.
“The COVID-19 pandemic has been difficult for the whole community and especially for small businesses — we have focused our attention on supporting small businesses (and all taxpayers) during this time,” the spokesperson told SmartCompany.
“Tax gaps are lag indicators and must be considered in context with other environmental/economic factors.”
