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Small business struggles to pay $14b in tax bills

Unpaid tax debts have jumped from $2.5 billion to $16.6 billion at the end of 2011-2012. The bulk of those are SMEs — and they’re in a very fragile state.

Later this year the Australian Taxation Office will get a new boss, with commissioner Michael D’Ascenzo set to depart after a six years in the top job and a staggering 35 years at the ATO. There is much speculation about his replacement. Will they come from within the ATO, as has been traditional? Or will the ATO break with tradition and appoint an outsider, albeit probably one from within the public service?

Whoever Treasurer Wayne Swan settles on, one of his first tasks will be to have a quiet word in the ear of the new commissioner and whisper: bring in those debts.

The ATO’s annual report released yesterday showed unpaid tax debts jumped by $2.5 billion to $16.6 billion at the end of 2011-12. That’s exactly 16 times the size of the 2012-13 budget surplus Swan is predicting. It’s a big jump, which says three things to me.

Firstly, conditions remain patchy out there in the smaller businesses in the community and there are clearly a big number of businesses struggling to manage their tax obligations.

Secondly, the ATO has actually remained pretty generous — as D’Ascenzo has consistently promised he would be — with companies that have had problems paying their bills. There are 285,000 payment arrangements out there at the moment.

And thirdly, the big jump says the Treasurer will be very keen to improve the rate of tax collections to plug the various holes in his budget surplus.

While the ATO doesn’t break down exactly who is responsible for those $16.6 billion in debts, it’s widely accepted the bulk of it belongs to SMEs. This was highlighted in the federal government’s recent budget update, where it was announced the ATO would get another $390 million in funding to help it chase $1.6 billion in unpaid debts over the next four years.

This isn’t a one-off give-cash-to-collect-cash initiative by the government. In the May budget the ATO received $195 million to help bring in $986 million from GST compliance. The ATO also got another $106 million to manage outstanding tax debts, an initiative expected to raise $1.125 billion over the next four years. So that’s $691 million in new funding the ATO has received since May to raise some $3.7 billion — and most of it will come from the SME sector.

Now, I can understand why the government wants to go after these tax debts as a budget-plugging quick win. And I can understand why the ATO would want to reverse what some might see as a poor collection rate.

But the ATO and its new commissioner need to be very careful about wading into the SME community and chasing big wads of cash. SMEs are in a fragile state and the ATO does not want to make unpaid tax debts into unrecoverable tax debts.

*This article was originally published at SmartCompany

8
  • 1
    Mark Heydon
    Posted Thursday, 1 November 2012 at 1:29 pm | Permalink

    The ATO should go and collect the tax debt owed by the SMEs (and any others owing) for the simple reason that those of us who pay our fair share of taxes are subsidising those that don’t, which is plainly unfair.
    If businesses cannot afford to pay what they owe then they are not viable businesses.

  • 2
    dazza
    Posted Thursday, 1 November 2012 at 4:01 pm | Permalink

    Like you said, ATO will have to be careful and not make ‘unpaid tax debts into unrecoverable tax debts”. Soon as the world recovers from the GFC and the career criminal bankers are hung up to dry, the better.
    Why are governments trying to protect these financial terrorists who have caused death and destruction around the world, is beyond any fair-minded person.

  • 3
    de soysa shiran
    Posted Thursday, 1 November 2012 at 4:30 pm | Permalink

    first you said “jumped from $2.5 billion to $16.6 billion” and then ” tax debts jumped by $2.5 billion to $16.6 billion”, pretty big difference, which one is it?

  • 4
    Nobody
    Posted Thursday, 1 November 2012 at 6:04 pm | Permalink

    Dazza

    These are SME’s, not your average Wall Street variety, but mainly not much more than mums and dads who employ from 1 to 10 people.

    To hell with the collection rate, what is needed here is understanding, patience and compassion or as the authors last article indicated, bringing down the house will get the ATO nowhere.

    Obviously you and Mark Heydon have never ran a small business.

  • 5
    dazza
    Posted Thursday, 1 November 2012 at 6:41 pm | Permalink

    Nobody
    You didn’t read and/or comprehend my message.
    I was suggesting the Government/tax-collectors need to punish people who are (really)responsible for the down-turn of economic activity that is crippling my, (and your) business? Why are governments not taking this criminal activity by the finance industry seriously? Hope the following link helps.
    http://rt.com/programs/keiser-report/episode-354-max-keiser/

  • 6
    MJPC
    Posted Friday, 2 November 2012 at 8:07 am | Permalink

    Nobody, I have never run a small business, however as a PAYG taxpayer have no means to lesson the tax I pay. I have dealt with many small businesses (usually in the trades) who are quite prepared to give a “cash” price sans GST, yet then cry poor when the ATO comes knocking usually as a result of a tax audit.
    Times are tough, but you have to earn money to pay tax. Some small business persons I have known like to live the good life (big house, boat, flash cars, overseas trips) yet balk at paying their fair cut of the tax. We all live in society and tax is the fuel that pays for all the services we use. Crocodile tears they can’t pay their fair share doesn’t cut with me when they had the money at some time.

  • 7
    Nobody
    Posted Friday, 2 November 2012 at 10:41 am | Permalink

    MJPC

    You are dreaming.

    Big house? Boat? flash cars? overseas trips?..what percentage of SME’s really have all these. Certainly not in my neck of the woods, it’s more like hand to mouth. Keep on dreaming.

  • 8
    Clarke Steve
    Posted Saturday, 3 November 2012 at 8:25 pm | Permalink

    …it was announced the ATO would get another $390 million in funding to help it chase $1.6 billion..”

    $390 million is a huge amount of money, no wonder Canberra always needs to keep collecting more and more in taxes.

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