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Tax: small business hit with avalanche of tax audits

The government last night announced in its Budget papers that it will allocate a further $445 million to the Australian Taxation Office in its fight against tax cheats in the cash economy.

The ATO will get $337.5 million over four years to fund additional activities that promote voluntary GST compliance and provide a level playing field for Australian businesses.  This measure will address issues relating to fraudulent GST refunds, systematic under‑reporting of GST liabilities, non‑lodgement of GST returns and non‑payment of GST debts. It is expected to result in an additional $2.7 billion in revenue over four years due to increased taxpayer compliance.

On top of this, the government will provide $107.9 million over four years to the ATO to address unfair competitive advantages that arise when some small business operators avoid their taxation obligations by conducting some or all of their business in the cash economy.

This measure will assist Australian small business to compete on a level playing field by addressing unfair tax practices through increasing the visibility of the ATO in the community.  It is also expected to increase consolidated revenue by $366.5 million over four years.

The ATO will hire an extra 275 staff to bludgeon small business with an extra 5500 audits in this sector alone.

The Budget confirmed that tax reform has been put on the back burner while small business continues to be overwhelmed by regulatory burden,” said Andrew Conway, CEO of the National Institute of Accountants.

In a move designed to crack down on rich tax cheats squirreling away money and assets in tax havens, the Budget papers announced that the government has signed tax information exchange agreements (TIEAs) with 15 countries.  The measure allows for the full exchange of information in relation to Australia’s federal taxes and the taxes of the relevant jurisdiction.  Each of these agreements will enter into force after both jurisdictions advise that they have completed their domestic requirements. This measure has an ongoing unquantifiable revenue impact.

Without a TIEA, tax authorities found it impossible to break the secret tax and banking regimes of the haven country.

In October 2008, I wrote that Australia had only signed three TIEAs and the floodgates were still open for the rich cheats to beat the system.  To have increased the number of countries covered by a TIEA is a significant improvement by the Rudd government.

However, there are still 11 countries on the ATO’s list of tax havens not covered by a TIEA.  Rich tax cheats can still hide cash and other assets without the fear of being caught in Andorra, Cyprus, Liberia, Liechtenstein. Marshall Islands, Mauritius, Montserrat, Nauru, Niue, Panama and Seychelles.

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