The ATO Targets Smaller Tax Avoiders

In an interview with Acuity, Australian Tax Commissioner Chris Jordan FCA has indicated that in his new agenda for 2018 he has set his sights on small business and big spenders.

For several years the Australian Taxation Office (ATO) has been focusing on large businesses and multinationals, but as Jordan has revealed, this focus will now shift to small businesses and individuals. The 2018 hit list includes undeclared income, wrongly-claimed expenses and unpaid superannuation guarantee contributions.

Jordan says that the ATO believes that it can now gain more from these smaller targets than from large multinationals. Big businesses such as BHP Billiton and Google have been the highest-profile ATO focus for some time now, but that focus is set to shift this year.

According to Jordan, the tax gap – an estimate of the difference between the amounts the ATO collects and what they would have collected if every taxpayer was fully compliant with the existing laws – is bigger for small taxpayers as a group than for the “large market” group of big businesses. The ATO has estimated the large market tax gap at A$2.5 billion (6% of the collections for that market).

The 2018 hit list is based on internal ATO work as well as the work of the federal government’s Black Economy Task Force. The Task Force report is yet to be released.

The ATO’s 2018 list of targets includes:

  • Undeclared income: “If we look at cash businesses, for example, why today do people want to have a cash-only business?” Jordan asks. “People say to me: ‘it’s terrible – people steal the money, you’ve got to count it, you’ve got to reconcile it, you’ve got to have security around it, you’ve got to take it to the bank’ … There’s no compelling business reason to have cash only.” Cash-only businesses are often paying cash salaries, and that may mean employees are also failing to receive proper conditions and benefits.
  • Unexplained wealth or lifestyle: Jordan gives the example of a business-owning family which has reported parent incomes of $70,000 and $50,000, but has three children at private schools and has taken business class flights on overseas trips three times in the past two years. The ATO can source such information through feeds from the Department of Immigration, and even Facebook when the ATO risk filters throw up flags, he says.
  • Work-related expenses wrongly claimed: Salary and wage-earners are claiming expenses that they can’t prove are related directly to work. And there are “small businesses that are mingling some of their private expenses with their business expenses”. Jordan acknowledges expenses have long been an issue for the ATO, but he wants to “renew the discussion to highlight that we are going to be focusing on these areas”.
  • Unpaid superannuation guarantee contributions: Unlike cash wages, unpaid contributions create “a real loss” for the employee, he says, so there will be “a much greater focus” on the issue. The new single-touch payroll reporting system, which starts in July 2018, will provide the ATO with much better and earlier information on unpaid contributions.
  • Concentrations of cash-only businesses: The ATO has been making visits to businesses based on a data map of cash-only businesses and those which do not much use electronic payment facilities. Suburbs visited include Sydney’s Cabramatta and Haymarket. Some visits have been made in tandem with the Fair Work Commission or the Department of Immigration. “Often there are people there that are not supposed to be working, or they’ve overstayed visas,” he says.

As commissioner, Jordan says he needed to previously address the tax failings of large businesses before he could turn his attention to smaller businesses and individuals.