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The year the ATO came out on top – again
08 January 2024
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14 minute read
Everyone knows the old chestnut about certainty, death, and taxes, but there’s a third thing about which Accountants Daily can have absolute confidence: the most read reports every year will be those directly relating to activity by the Australian Taxation Office.
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A quick scan of 2023 numbers revealed a familiar pattern: the talent drought, big four firms, and shenanigans at professional bodies account for about half of the top 20 most popular stories; the rest revolve around what ATO did next.
One very popular topic was the expansion of the revised client linking system to include all businesses with an ABN (aside from sole traders), which became mandatory on 13 November.
The new system, with its six-step procedure and reliance on a client to act, was a bone of contention between professional bodies and the ATO from the beginning of the year. Many felt it was too complex and clients would baulk. To BAS agents, who could be inadvertently delinked from a client by an unwitting accountant, it turned an annoying quirk in the system into a major headache.
Feelings ran high, with some participants at ATO working groups on the topic promising to die in a ditch rather than see the system get up without changes. We can only hope they are in good health; the final score was ATO, 1: tax professional representatives, 0.
Information campaigns by bookkeepers’ bodies and the ATO itself have attempted to lessen frustration with the system and the office was unable to say how many agents had actually been inadvertently disconnected. But it did say that up to Christmas almost 40,000 taxpayers had successfully nominated a tax or BAS agent online.
“Of these nominations around 30,000 have been accepted by the nominated tax or BAS agent noting that the nominated agent has up to 28 days to accept the nomination from the taxpayer to successfully complete the linking process,” the ATO said, highlighting a concessional expansion to the original deadline of just seven days.
Another deadline of interest involved the amnesty for small-business lodgement penalties, which ended on 31 December. Announced in the March budget, it was available to businesses with less than $10 million in annual turnover when the lodgement was due and came into force on 1 June. It applied to income tax, FBT, and BAS lodgements originally due between 1 December 2019 and 28 February 2022.
In early December the ATO issued a prompt that the scheme would soon end that included measures of how popular it had been. More than $48 million in failure-to-lodge penalties had been waived for 14,000 small businesses, the ATO said.
However, missing from the numbers was context, such as the usual level of penalties or how many businesses had been encouraged to lodge by the amnesty that might otherwise have sat on their hands. Accountants Daily awaits the final tally – taking in the last 25 days of the scheme – with interest.
Small-business lodgements were of special interest to the ATO because the amount small businesses owed had ballooned in the wake of COVID-19. At every opportunity, it seemed ATO execs pointed a finger at the nation’s most recalcitrant sector, which owed $33 billion of the $45 billion of business collectable debt.
By September, Commissioner Chris Jordan and Deputy Commissioner Vivek Chaudhary made it clear the gloves were off, especially when it came to long-term debt worth at least $4 billion owed by 40,000 businesses.
The ATO would use budget funding of $82 million to crack down on thousands of businesses with debts of $100,000 and above or older than two years.
Mr Chaudhary said leniency during the pandemic had lulled business owners into a “whenever” mentality when it came to tax obligations.
“Businesses appear to be de-prioritising payment of tax and super when they should be provisioning for these bills like they would with any other business expenses,” he said.
“For these clients, concessions are no longer available and their debts will progress straight to firmer actions.
“We will continue to apply a full range of firmer actions including garnishees, directions to pay, director penalty notices, disclosure of business tax debt, and prosecution actions, to ensure payment.
“Over the life of this program, we expect to action just under 40,000 accounts with overdue tax and super debts and collect around $640 million. We also expect that there will be exits.”
The ATO’s stronger recovery stance had “shifted the business landscape in relation to ATO debt recovery” in the past 12 months, he said.
“It’s not fair for businesses with large outstanding debts to continue to use the ATO as a low-interest loan facility. It is now time to re-establish the culture of paying tax on time,” he said.
Individual taxpayers also got their share of attention. A few months earlier in June, the ATO had alerted taxpayers good or bad that it had added more data-matching protocols to its compliance arsenal, with landlords a special target.
The wider data matching system would provide access to information from property managers, landlord insurance providers, financial institutions providing loans for residential investment properties, sharing economy providers, and income protection policy information.
ATO Assistant Commissioner Tim Loh said the expanded capabilities would expose anyone trying to get away with dodgy data.
“Our sophisticated data matching programs provide us with all the clues we need to track down taxpayers with incorrect information in their tax return,” said Mr Loh.
The ATO said nine out of 10 rental property owners were currently getting their returns wrong and the information would be used to “educate” them.
“Around 80 per cent of taxpayers with rental income claimed a deduction for interest on their loan and this is where we’re seeing mistakes,” said Mr Loh.
“For example, you can’t refinance an investment property to buy personal items, like a holiday to Europe or a Tesla, then continue to claim the interest expenses as a tax deduction.
“This new data provides us with crucial intelligence to paint a picture of what’s true and accurate in tax returns.”
Also in its information gathering net from July were those earning from ride-sharing and accommodation apps such as Uber or Airbnb, as the Sharing Economy Reporting Regime commenced.
With record numbers of taxpayers earning from side hustles, the rest of the sharing economy regime is on notice it will have to start reporting from this July.
The ATO would also be cracking down on work-from-home claims and a change to reporting requirements that began – controversially – more than halfway through the tax year in March would catch many taxpayers out, observers thought.
HLB Mann Judd tax consulting director Bill Nussbaum said many taxpayers would be unaware that the 80¢-an-hour shortcut method introduced during COVID-19 had been discontinued and that a different approach – a diary of actual hours – was now essential under revised fixed-rate rules.
“A lot of people won’t be aware of the changes, which is concerning given the ATO has indicated work-related expenses are an area of focus this year,” he said.
Another ATO concern centred on schemes aiming to tempt SMSF trustees into illegal early release arrangements or inappropriately channelling money or assets into an SMSF to pay less tax. It warned that illegal access or use of an SMSF could result in the loss of some or all of an individual’s retirement savings and the possibility of being disqualified as a trustee.
Around the same time, employer superannuation contributions were being subject to unprecedented scrutiny following criticism by the National Audit Office. Accountants reported a huge increase in superannuation audits along with a change in what would trigger ATO scrutiny. RSM global employment services partner Rick Kimberley said his firm had been involved in 20 superannuation audits in the past year, double what it would typically experience.
“I have never seen this level of auditing before,” he said. “In the last 12 months it really has ticked up a gear. Every day I’m getting an email about another organisation getting audited.”
However, amid all its strident wins the ATO did suffer one modest setback when it came to debts on hold. In late November, it was forced to slam the brakes on an awareness campaign that had dispatched 28,000 letters to accountants alerting them to clients with debts on hold, some amounting to no more than a few dollars or even cents. Readers said some involved defunct businesses or even deceased former clients and would cost more to reconcile than the amounts involved – if the paperwork still existed.
“We accept that our communication approach caused unnecessary distress – especially for those debts incurred several years ago,” the ATO said. “We will review our overall approach to debts on hold before progressing any further.
“No further action is required by anyone who has received a letter. However, if you have questions about your existing tax debt, you can contact the ATO for further information.”
The Accountants Daily report of the campaign got about the same number of views as another ATO story a few months earlier: “Don’t call us! ATO tells agents, just go online”.
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