Efforts to collect small business tax debts must be “proportional”, Independent MP Allegra Spender says, echoing concerns from fellow ‘teal’ MP Zoe Daniel that small businesses are struggling to cope with the Australian Taxation Office’s (ATO) current compliance approach.
Responding to Daniel, who this week called upon the tax office to show “nuance” when chasing debts accrued by small businesses, Spender said inflexible tax collection practices could push struggling SMEs over the edge.
“The ATO has a responsibility to ensure that all Australians and businesses are paying their fair share of tax but there is a cost to heavy-handed tactics,” Spender said, in a statement provided to SmartCompany.
September data from credit monitoring agency Alares shows cash flow issues, caused by declining consumer spending in key sectors, are pushing small businesses to the brink of insolvency.
“More than half of business insolvencies at present relate to cash flow,” Spender continued.
“And with declining consumer spending, rising energy and input costs, most businesses are struggling to keep their head above water, particularly among our small and family business community.”
In this environment, it is important the ATO does not put undue pressure on small businesses when chasing tax debts, she said.
“We need to ensure that the measures to recoup debts are proportional.”
The statement comes weeks after Spender released a tax reform ‘green paper’, suggesting ways Australia could rethink its taxation system.
While the paper focuses on big-picture policy reforms, the ATO’s compliance approach warranted a mention.
“Many businesses raised issues about their interactions with the ATO” while developing the paper, she wrote.
“The concerns included delays in the ATO providing guidance on tax questions, and the ATO’s aggressive attitude towards compliance, particularly for small businesses.”
Small businesses held $35.6 billion in collectable tax debt as of August 31 this year, making up 65% of the $54 billion total.
The ATO is ramping up its compliance measures to whittle down that collectable debt, and is increasing the use of its strongest tools, including Director Penalty Notices and court recoveries.
However, the tax office says it wants to be more transparent about its collection duties and areas of interest, helping small businesses confess their debts before facing the harshest consequences.
Starting this month, the ATO will issue a quarterly list of focus areas.
The separation of business and personal income, confusion over deductions, and GST in the taxi and ride-share services top the first list.
“Small business is serious business, and we want to help business owners get their tax and superannuation obligations right,” ATO deputy commissioner Will Day told the Institute of Public Accountants in late November.
Day highlighted the ATO’s online small business training portal, designed to give small businesses the skills needed to navigate their obligations, with new modules on the way.
Day also reflected on the tax office’s overarching goal of a digital-first tax system, enabling real-time tax reporting that makes it easier for small businesses to comply with their tax obligations on a daily basis.
While the ATO is pledging transparency and openness in its collection strategy, Spender also believes the Australian taxation system deserves a major overhaul.
In her ‘green paper’ released last month, Spender says changing the way businesses are taxed could drive investment and spur productivity growth, without forcing income earners to pay more.
To meet those goals, the paper invites debate about:
The paper calls for lawmakers to consider lower capital gains discounts on investment income, a related crackdown on negative gearing allowances, and increasing the GST rate, to make up for reduced personal income and business taxes.
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
