The tax office has formed a dedicated team to oversee complex cases where businesses are intentionally shirking their obligations, a bid to better distinguish between black economy bandits and well-intentioned companies.
Australian Taxation Office (ATO) commissioner Chris Jordan says the tax office needs to be more empathetic to small businesses and will exercise more discretion in cases where firms have made mistakes or fallen behind, versus intentional lawbreaking.
“We have to be better at distinguishing, and providing more empathy between situations where something has just gone wrong for whatever reason, versus blatant recklessness or evasion,” Jordan told the Council of Small Businesses Australia (COSBOA) summit in Melbourne late last week.
In a speech which drew a line under a tumultuous 18-months for the tax office and its relationship with small business, following allegations of bullying and heavy-handed practices in a Four Corners report last year, Jordan said the ATO had recognised it needed to do better.
“We’ve changed around, quite significantly and purposefully, our cultural attributes,” Jordan said, detailing tax office efforts to be a more considerate “facilitator” rather than “protector” of the tax system.
“We’re facilitating people navigating through complex systems,” he said.
Cultural changes at the ATO
In the wake of what a parliamentary committee dubbed a ‘horrible year’ for the tax office, it has been reviewing internal processes, specifically dealings with small business clients, and has committed to a program called “better as usual” to shift its culture.
Under the plans, being overseen by second commissioner of client engagement Jeremy Hirschhorn, the ATO is reviewing its entire “pipeline” of interactions with small business owners.
This includes lodgement, activity statements, tax returns, disputes and debt management, with a focus on improving internal feedback loops so the ATO can better understand individual circumstances.
Essentially, Jordan said the tax office is going to get better at knowing the history of the businesses they’re working with at any given time to, hopefully, deliver more timely and effective outcomes.
These efforts are being enabled, in part, by the increasing amounts of data the ATO is able to collect and analyse, with new tools being implemented for customer service staff to ensure they have adequate information at hand when engaging with a small business taxpayer.
“There’s often a story we don’t really get behind and understand,” Jordan said.
“By better understanding and better documentation internally of our past experience we can make better decisions in the future.”
Dedicated team to ramp up enforcement
It comes as the ATO ramps up its enforcement activity in the small business sector. Last week it published research which revealed a whopping $11 billion gap between how much income tax small business should have paid in 2015-16 and how much it actually paid.
The research found 90% of small businesses do pay their tax on time, attributing $7 billion of the gap to black economy activity.
“We will come down hard there,” Jordan said of ongoing black economy efforts.
As detailed last week, an increased number of physical business visits, a dob-in hotline and increasing use of automated data analytics to red flag suspected black economy activity is underpinning ATO efforts.
But as the tax office steps up enforcement, Jordan said the ATO recognises a need to protect well-intentioned companies who may have made mistakes or fallen behind for other reasons.
With that in mind, a separate unit has been created within the ATO to specifically deal with cases where businesses are suspected of intentionally doing the wrong thing.
“You’ll have people more used to dealing with people who are trying to do the wrong thing, versus the majority who aren’t,” Jordan said.
This will be backed up by a series of new “procedural and cultural safeguards”, intended to steadily reduce cases where the ATO makes a mistake that puts businesses in financial jeopardy.
A small business ombudsman review of ATO debt enforcement practices published earlier this year identified a series of concerns about tax office procedures around the use of its compliance tools, including garnishee notices, which enable it to take money straight from the bank accounts of businesses without permission.