The 2019–20 budget included $9.2 million over four years to create a dedicated unit within the Fair Work Ombudsman to “more effectively tackle sham contracting by increasing education, compliance and enforcement activities, and dedicating additional resources to investigate and litigate cases”.
This announcement is only the latest in a trend of investments by the Commonwealth government to scrutinise taxation and employment arrangements, and to ensure proper payments are made to workers and taxes are paid according to legal requirements. When the Commonwealth has made investments in new compliance systems, they have generally delivered a high return in the form of increased taxation revenue.
A good example is the expansion of the taxable payments reporting system (TPRS), which initially applied to building and construction companies from its introduction in 2012. Since then, the scope of the TPRS has expanded, and from 2018–19, companies providing courier and cleaning services will also need to lodge a taxable payments annual report.
The ATO reported an additional $2.7 billion in taxation revenue as a result of the TPRS in 2015–16, and it expects the expansion of the system would also bring in additional taxation revenue.
That translates to businesses who might previously have not paid this tax being picked up under more stringent compliance requirements.
Part of the new landscape for any business is the connection of their systems with those used by the regulator.
Single Touch Payroll commenced from 1 July 2018 for companies with more than 20 employees and provides the ATO with real-time data on employee payments and superannuation. This data can be matched with individual tax returns and other data to ensure proper payments of employee entitlements and taxation.
From 1 July 2019, businesses with fewer than 20 employees are also required to report through the system.
These initiatives — to ensure that workers receive their proper entitlements and to maintain a level playing field on taxation payments — are welcome. And most businesses try to do the right thing.
However, the complexity of legal requirements, and increased scrutiny, may see small and middle market businesses inadvertently fall on the wrong side of the law.
Australian small and middle market businesses should consider working through a “health check” with their adviser to ensure taxation, employment and payroll systems comply with taxation and employment requirements, along with new reporting obligations.
Just because a business has “always done it this way without any issues” doesn’t mean that the approach is compliant and won’t be flagged by increased scrutiny.
At the same time, the ATO and other agencies should recognise that business generally tries to act above board, and ensure enforcement is a last resort.
A supportive and educational approach to help business meet new reporting requirements, and appropriately rectify any inadvertent non-compliance, will be more effective in the long run than a big stick.
Ali Suleyman, Tax Consulting Partner, Pitcher Partners