SMEs bear brunt of debt collection crackdown

Small businesses are bearing the brunt of a crackdown on debt collection, with the Australian Taxation Office almost doubling the amount raised in goods and services tax from audits in one year.

The ATO raised $1.6 million in GST from audits in the second half of last year, almost double the amount it raised in the same period the year before.

Nearly two-thirds of the audit revenue came from SMEs and micro businesses, reflecting the ATO’s focus on audits and debt collection.

According to figures released in its mid-year performance report the ATO contacted 753,301 taxpayers in its GST compliance efforts, almost five times the previous number, while its “strike rate” in liabilities was 61%.

The ATO’s tough new stance is in response to the massive GST debt outstanding, with the ATO estimating that $3.2 billion was due at November last year.

“We are taking much firmer action, such as garnishee orders and statutory demands, against taxpayers who are either unwilling to engage or continually defaulting on other arrangements,” the ATO says in its report.

According to the ATO the number of garnishee orders issued in relation to small businesses with turnover less than $2 million fell by 8.8% from June 30, 2009 to June 30, 2010.

But since the second half of 2010 accountants have claimed the ATO will not enter into payment arrangements as easily as 12 or 24 months ago at the height of the global financial crisis.

According to an ATO spokesperson the department needs to take firmer action to recover outstanding tax debts in order to maintain a level playing field for taxpayers.

“Our approach takes into account individual circumstances to determine the best way to clear your debt,” the spokesperson says.

In its latest report the ATO says it will continue to assist small businesses “who are willing to work with us” to pay back debt.

The ATO received additional funding of $338 million last year to intensify its GST compliance activities over a four-year period, with “disengaged property developers” identified as a particular target in its crackdown on small business fraud.

Tax experts have expressed concern over whether the ATO is being sufficiently understanding with smaller businesses and not unnecessarily hitting them with penalties, arguing a that concentration of penalties has been imposed on small businesses in the past.

The ATO’s latest report on debt collection does not include penalty or interest charges.