Experts warn SMEs need to be ready for GST compliance crackdown

The Australian Taxation Office will crack down on fraudulent returns, systematic underreporting and non-payment of GST debts during the next financial year, and may even be focusing on fraudulent SMEs instead of bigger business.

As part of the Government’s 2010-11 Budget, released last night, the Government will spend $445 million over the next four years to stamp out the cash economy and promote GST compliance.

The funding is expected to recover a further $3.2 billion in lost revenue as a result. It comes after the ATO has embarked on a campaign to eradicate the cash economy and encourage GST compliance.

As part of the new funding, the ATO will pay special attention to fraudulent tax returns, underreporting of GST liabilities, non-lodgement of tax returns and non-payment of GST debts.

David Wilson, a tax partner with accounting firm BDO, says the ATO will focus on businesses which are actively looking to eradicate their GST payments through fraudulent activities.

“They are really talking about fraud here. They must have formed a view that there is a large amount of revenue they are missing out on, and thus they are going to spend a few hundred million going out and getting it. There is an obvious return on investment here.”

Wilson says that while the Government has not specified it will be going after SMEs specifically, the wording within the Budget papers seems to appeal more to smaller businesses and not larger enterprises.

“They haven’t said they will be going after SMEs specifically, but they are already a number of compliance activities operating at the higher end of town. What they are talking about is systematic underpayments, lodging without paying GST, and that sort of thing, which doesn’t occur to me as the sort of thing a BHP or Rio Tinto would do.”

Wilson says businesses shouldn’t necessarily be alarmed, but they should certainly be alert as the ATO will prepare to audit even businesses which haven’t been doing anything wrong.

“People need to be ready for this sort of stuff, because there are sever penalties, and if people have been playing games then they should be getting on top of things very quickly. If you’re playing by the rules it will be distracting for you, and the ATO may even request an audit, so you really do need to be prepared even if you haven’t done anything wrong.”

Pitcher Partners partner Craig Whatman said in a statement the inclusion of a further $337 million for cracking down on GST compliance is the most newsworthy measure among the GST reforms.

He said these provisions will address a number of issues which have been plaguing the GST system for some time. Additionally, he warned businesses to pay attention to the ATO’s movements and work with their tax agents to ensure they are complying with current rules and regulations.

“When this additional funding is combined with the existing funding that the Government has previously committed to provide to the ATO for GST compliance activities, it will result in a significant number of taxpayers being selected for GST reviews and audits over the next four years.”

“All business taxpayers that are GST registered would be well advised to make sure their GST affairs are in order before the ATO comes knocking in order to reduce any exposure they have to unpaid GST as well as penalties and interest charges.”