FEDERAL BUDGET 2011: ATO receives $146 million to crackdown on phoenix schemes, tax refund fraud and contractor payments

The Government has again flagged a crackdown on tax avoidance in this year’s budget, with operators of phoenix schemes given special attention in a round of new measures that will see harsher punishments for company directors caught breaching tax laws.

The Federal budget will also provide over $146 million in funding for the Australian Taxation Office to address fraudulent tax refund claims, monitor inaccurate grant payments and introduce a new measure that will see certain businesses forced to report payments to contractors.

These initiatives are estimated to provide the Government with a further $900 million in revenue over the next four years.

“What we want is a tax system that reinforces respect for government tax collection by not only being responsive to taxpayer needs, but by displaying effectiveness,” Assistant Treasurer Bill Shorten said in a statement.

Phoenix arrangements crackdown

The Government has bolstered current laws regulating phoenix activity, which occurs when companies avoid paying debts and charges – including taxes – by transferring assets from a collapsed business into a new one. The new business is operated or controlled by the same person or persons.

The new laws will see an expansion of the director penalty regime, which will now make directors personally liable for failing to pay superannuation to employees.

The ATO will also be awarded the authority to start recovery processes against directors under the penalty regime without the need for a 21-day grace period for liabilities left unreported for three months after they are due.

Moreover, in some circumstances directors and their associates will be stopped from obtaining credits for withheld amounts in their tax refunds if their company hasn’t paid enough to the ATO.

Fraudulent refund detection

The Government will provide $56.4 million over the next four years to crack down on fraudulent tax refund claims, with Shorten warning there is evidence the system is being abused by some who are claiming too much.

The money will be provided so the ATO can crackdown on over-reporting of tax losses before the actual refunds are issued, while funds will also be used for more business education and enforcement activities.

“Refund fraud is a compliance risk with the potential to undermine community confidence in the integrity of the tax system,” Shorten said.

Government grant and payments fraud

The Government believes some recipients of grants and other payments may not be aware of their tax obligations. Therefore $43.3 million is being handed to the ATO in order to clamp down on accurate reporting of grant payments.

While many Government grants provide full assistance to recipients, many are in the form of loans and need to be repaid over a certain period of time, depending on how much the original funding was.

Shorten says the ATO will continue with its data-matching practices to examine compliance activity.

“It is important that the recipients of Government grants and payments properly account for these payments,” Shorten says.

Taxable payments fraud

New money for taxable payments fraud is split into two parts, with the changes mainly aimed at contractors.

Shorten warns there appears to be some contractors either unaware of their tax obligations, or deliberately under-reporting them. As a result, certain businesses in the building and construction industries must report to the ATO annually on payments made to contractors, along with their ABN.

Just over $46 million will be provided to the ATO for this over the next four years, while some of the money will be used “to provide further assistance and education to industry”.

This requirement will come into effect from July 1, 2012, but Shorten says businesses will only generally be required to report information they already have anyway.

“The reporting regime will allow data-matching to provide information for review, targeted audits or further assistance and education,” Shorten says.

Public consultation will be underway during 2011-12 to investigate a reporting scheme made for contractors in the commercial cleaning sector.