The recommendation is one of 25 detailed in the Australian Small Business and Family Enterprise Ombudsman’s latest research paper on a new tax system for small businesses.
ASBFEO Kate Carnell believes changes are necessary to create a better power balance between the ATO and business owners as the Tax Office’s collectable debt book rises to $34 billion in the wake of COVID-19, with $21 billion owed by small businesses.
“The ATO quite reasonably sees its role as an enforcer of taxation laws, but too often it loses sight of the people running the business,” said Ms Carnell.
“This is particularly evident in the area of debt collection, but it’s exacerbated by our overly complicated tax laws.”
To encourage better compliance within the sector, Ms Carnell believes the ATO should restrict its audit and review period to just one year if a small business uses a registered tax and BAS agent.
However, these tax and BAS agents will need to be accredited by the ATO as a competent and experienced practitioner to give assurance to small-business owners that they are relying on reputable advisers.
Successful accreditation will include maintaining full membership of a professional association, have no record of substantiated client complaints to either the Tax Practitioners Board or their professional association, maintain full compliance with their own tax affairs, and meet lodgement program benchmarks for three consecutive years.
“As an incentive for small business owners to utilise the services of an accredited tax agent, the ATO would have a shorter period of time – our proposal is 12 months – in which to start a review or audit for small business tax returns,” said Ms Carnell.
“We expect that accreditation will also highlight those advisers who need closer supervision or intervention.”
The Tax Institute’s general manager of tax policy and advocacy, Scott Treatt, believes there is merit in the ASBFEO’s recommendation, particularly as a counterbalance to the TPB’s push to publish more detailed reasons for practitioner sanctions.
“If we are expecting transparency around tax practitioners who are not up to standard, then we should also have transparency around the practitioners who are consistently behaving appropriately in regard to regulators and clients,” said Mr Treatt.
“If the ATO has the data available to keep a detailed register of practitioner behaviour which results in sanctions, then why shouldn’t those on the other side of the coin – practitioners who consistently do the right thing – be recognised?”
Waiving penalties, freezing garnishee orders
Ms Carnell has also called for the ATO to suspend penalties for small businesses who commit first-time tax offences, before eventually waiving them if the business demonstrates three years of tax compliance.
She believes it will offer a fair outcome to small businesses that could inadvertently make a mistake while operating under a complex tax regime.
Small businesses will be required to make good on the error to see penalties and interest suspended, and eventually waived if they remain tax compliant for three years.
“It is important to recognise that the definition of where the error first occurs should include all instances of the same error up to the point where the ATO advises of the error, or where the small business recognises that the error has been made, rather than on the errors’ first occurrence only,” added Ms Carnell.
“This will alleviate the unfair situation where a small business has, in good faith, been making an error on an ongoing basis, but only gets relief for the first individual instance of the error.”
Garnishee orders should also be frozen for 21 days upon service to allow small businesses to appeal to the Administrative Appeals Tribunal, while debt recovery action should immediately cease if a small business is seeking a review of its tax position.
“We recommend that the ATO should be required to follow a system similar to that in the United States whereby the Inland Revenue Service (IRS) cannot collect a tax debt until all avenues of appeal have been exhausted,” said Ms Carnell.
“While there may be an incentive for some business owners to continue to seek an appeal in order to delay the payment of a legitimate outstanding debt, we believe the financial cost of seeking further reviews past a point (for example, beyond the AAT), will be more onerous than the actual penalty.
“This means that vexatious appeals against decisions are unlikely to proceed, especially where a small business owner knows their chance of winning the case is negligible.”
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.