“Our full attention”: ATO steps up enforcement as small business fails to pay $11 billion in tax

The tax office is stepping up its enforcement efforts after finding Australia’s small business community failed to pay $11.1 billion in income tax obligations through 2015-16.

Unveiling the results of an extensive research project sizing up Australia’s small business tax gap on Tuesday, the Australian Taxation Office (ATO) said $7 billion (64%) of the unpaid tax was tied to black economy activity.

Tax gaps are estimates of the difference between tax collected and the amount which would be collected if every firm was fully compliant with the law.

The $11.1 billion small business income tax gap was 12.5% in 2015-16, which compares to a range of 9-30% in other countries across the world, the ATO said on Tuesday.

The tax office is working on a series of enforcement programs to reduce the tax gap. Deputy commissioner Deborah Jenkins said bans on sales suppression software and a recently launched dob-in-a-business tip-off hotline are part of crackdown efforts.

“Hiding income, exaggerating expenses and operating outside the system are all considered to be black economy behaviours,” Jenkins said in a statement circulated Tuesday.

“Businesses doing the wrong thing are about to attract our full attention.”

The release of the research comes days after the ATO revealed it will be proactive about sending “nudges and warnings” to businesses not complying with their superannuation guarantee obligations.

Those efforts have been empowered by the growing role of data and analytics technologies within the tax office.

Programs such as single touch payroll (STP) reporting and the advent of more frequent reports from APRA-regulated super funds are providing useful insights.

Data analytics are also being employed in the fight against black economy operators, with the tax office discussing a sophisticated tool that red flags omitted income on Tuesday.

Mobile “strike teams” are also being deployed amid a step-up in tax office enforcement efforts, with close to 10,000 businesses across the country visited in the ongoing crackdown over the last year.

A further 30,000 firms will be getting a visit from ATO officials over the next three years, in a program being rolled out alongside broader community engagement efforts.

Necessary pain

The tax office stressed most businesses are doing the right thing, with research finding 90% of income tax paid by small businesses is contributed voluntarily.

“Considering how much small businesses have on their plate, we’re grateful for the level of work they put in to get their tax right,” Jenkins said.

But with the economic cost of black economy activity estimated to be as high as $50 billion per year, Tony Greco, general manager of technical policy for the Institute of Public Accountants, welcomes the step-up in enforcement efforts.

“You can’t give out too many free kicks here,” Greco tells SmartCompany.

“Unfortunately, businesses who are doing the right thing will face higher compliance costs, but you try to balance it out.

“It’s a necessary pain point, we acknowledge that.”

Greco was a member of the Black Economy Taskforce, which made dozens of recommendations to the government about ways to curb illegal activity, including new director ID laws and a ban on cash transactions above $10,000.

With the ATO research revealing nine-in-10 small businesses use an accounting professional, Greco says it is also up to members of the accounting community to help ensure businesses are getting it right.

“We’re trying to make sure our members aren’t accepting things at face value,” he says.

“You can’t just accept what you’re given without offering or exercising due diligence or reasonable care.”