A shift in resources to help the taxman chase late-lodging SME owners could be the result of a review into late tax returns by the taxation inspector-general.
The inspector-general of taxation, David Vos, is reportedly set to announce a review into the Australian Taxation Office’s dealings with people who fail to lodge tax returns on time, or at all.
A key reason for the review is the fact the no one is really sure how many of the 10,000 to 20,000 people who drop out of the tax system each year are simply seeking to avoid paying tax, according to Taxation Institute’s senior tax counsel, Michael Dirkis.
Dirkis says there are concerns that a shift in ATO resources towards dealing with the administration of the GST after 2000 meant the focus was taken away from following people with tax debts or who have simply failed to lodge a tax return – with the consequent finding earlier this year that small business owners owe more than $6 billion in tax.
He believes it is likely that any attempt to reduce the rate of people dropping out of the tax system would have the SME sector as a focus.
“It is likely that more resources could have to go to chasing small business owners who have dropped out, we have seen that increase in debt collection of small-business debts because we know that the sooner we collect the sooner we pay, and of course the principle applies when it comes to people who have failed to lodge tax returns.”
Although there has been speculation that the inspector-general will find that penalties for late lodgement should be increased, and the ATO given greater enforcement powers, Dirkis believes the problem is mainly one of resources.
“From the ATO’s point of view it is a resource issue; if it does threaten someone with fines or court action them you have to have the resources to do that, in the past the ATO has sent letters and not done anything about it, and of course people then just ignore the letter the next time they get it,” he says.
Increased education and access to information for taxpayers may also help increase on-time lodgement, according to taxpayers advocacy group Taxpayers Australia.
Senior tax manager Angela Carabott says ending the practice of sending tax packs to every household and the migration of tax information and processes online may be causing problems for some taxpayers.
“Things like penalties are stated in the tax pack, but now individuals have to go out and find them or use e-tax – which is fine if you are educated and proficient with computers, but if you are a self-managed and funded retiree who is 70 you may not be in that situation,” Carabott says. “It does become too much for people, and I’d say very few do know that there are penalties associated with late lodgement or even when lodgement is required.”