Help can come from the most unlikely quarters, and business owners may find that it is the ATO itself that will ease tax debt pain. By TERRY HAYES of Thomson Legal & Regulatory.
By Terry Hayes
The tax office says it is working to provide easier, cheaper, simpler ways for small business to deal with tax obligations.
In a recent speech, the Tax Commissioner Michael D’Ascenzo said: “Small business is not looking for binding legal documents; it is looking for practical, step-by-step guidance and assistance.”
Another key focus this year will be a significant increase in compliance activities focusing on self-managed super fund regulatory issues such as in-house assets and loans to members.
And don’t forget the critical sole purpose test that I talked about previously . Self-managed super fund auditor contravention reports will also continue to be examined by the tax office, as will firms undertaking a large number of audits without any auditor contravention reports.
SME tax debts
If SMEs fall behind or are having difficulties with their tax debts, they can contact the tax office early (call 13 11 42) to let it know their situation. In these circumstances, the tax office will often work with SMEs on a solution.
It has also received additional funding from the Government to help get the SME tax debt down. It will do this by expanding its automatic dialler technology, referring some debts to external debt collection agencies, and by allocating more staff to recovering superannuation guarantee charge debts owed to employees.
The tax office says it will also use risk modelling to better tailor its treatment of taxpayers who have a debt by applying different strategies depending on their individual circumstances. By using this capability, the tax office seeks to identify taxpayers who benefit from early contact, helping them to avoid problems further down the track.
The Commissioner says the tax office will take individual circumstances into account and is “as fair and reasonable as possible”. To illustrate what he means, D’Ascenzo outlined several case studies.
Mike was struggling to stay up-to-date with his tax obligations. He had accrued a tax debt, but the general interest charge meant that his debt was not reducing even though he was making regular voluntary payments at the maximum he could afford.
Mike contacted the tax office, which considered his previous good tax record and the circumstances that led to the debt. The tax office remitted the general interest charge that had accrued so that he could keep trading while repaying his tax debt.
Peter and his medical problem
Peter’s debt had accumulated due to a medical condition that prevented him from working for several years. Before this, he was a model taxpayer. Peter was able to pay the primary tax but was not in a position to pay the primary tax together with penalties and interest. The tax office remitted both.
The poor records couple
Thomas and Natasha had failed to keep adequate records. As their business grew, they didn’t address its capital requirements and used money that was needed to pay tax obligations.
They accrued a tax debt, which escalated over time. By the time they approached the tax office for assistance, the debt had grown significantly. Therefore, they were competing against other business that had paid their tax.
The tax office tried to get them back on track by negotiating a payment arrangement. However, they failed to meet the payment instalments and the tax office commenced “firmer recovery action”. Thomas and Natasha had to liquidate their company.
In the Tax Commissioner’s view, these case studies show three things:
The tax office will help people over the line where it can.
Taxpayers need to seek assistance early before the problem becomes too big.
It is unfair to others if businesses are able to compete on the basis that they have not paid their tax or super guarantee responsibilities – such businesses are at an unfair competitive advantage.
These examples might seem simplistic, but they do illustrate the fundamental points the Commissioner is making. It’s not all one-way traffic – be reasonable, keep the tax office in the loop, and ask for help when things get tough.
That help might come from your accountant or adviser or, as strange as it may seem, from the tax office itself. Help can come from the strangest quarters, but that help is on offer and should not be ignored!
Terry Hayes is the senior tax writer at Thomson Legal & Regulatory , a leading Australian provider of tax, accounting and legal information solutions.
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