ATO steps up crackdown on phoenix companies and tax cheats

The Australian Taxation Office might be showing struggling small businesses unprecedented levels of leniency during this downturn, but don’t accuse the taxman of going soft.

The ATO has flagged its determination to hit tax cheats hard by releasing a new magazine trumpeting the recent results of its tax crackdowns – and dodgy SMEs are firmly in their sites.

In the 12 months to 30 June, the ATO raised more than $83 million in tax penalties and liabilities from its crackdown on so-called phoenix practices, whereby companies deliberately go into liquidation to avoid tax, creditors and employee entitlements and then reemerge as a another corporate entity but with largely the same management.

The cost to the Australian economy of phoenix and related practices has been estimated to be between $1 billion and $2.4 billion a year and the ATO was given specific funds to hunt for phoenix practices in the May Federal budget.

“Tax avoiders involved in phoenix operations deny vital funds to Australian public services and even cheat employees of wages, superannuation and other entitlements,” Assistant Treasurer Nick Sherry said yesterday.

The ATO’s Project Wickenby tax probe – which focuses on the use of tax havens by the wealthy – raised $230 million in tax liabilities in 2008-09 and collected $40 million in cash.

To date, Wickenby has raised $406 million in tax liabilities and collected $117 million in cash.

The Rudd Government announced in this year’s budget that another $122 million will be pumped into the Wickenby probe over the next three years.