ATO to resume penalties for tax debts, as small business independent review service made permanent

The Australian Taxation Office will resume issuing penalties and taking compliance actions against businesses that have outstanding debts or lodgement obligations, after pausing this activity during the 2020 summer bushfires and coronavirus pandemic.

The return to enforcement actions comes as the JobKeeper wage subsidy program officially ended on March 28, prompting concerns the number of business insolvencies will begin to climb over coming weeks. 

A spokesperson for the ATO confirmed to SmartCompany that the tax office had resumed sending letters to businesses in February to advise them of the potential next actions if their obligations remained overdue.

As of the end of March, penalties will resume “where appropriate”, says the spokesperson, and the tax office will take debt and lodgement compliance actions “on a case-by-case basis”. 

However, the ATO says it will continue to help businesses that engage with the tax office, with payment plans available.

“We understand the bushfires from last year, COVID-19 or the floods more recently may continue to have a significant impact on taxpayers and tax professionals,” says the ATO spokesperson. 

The ATO paused much of its debt and lodgement compliance activity in November 2019 for businesses affected by the bushfires. 

The same approach was expanded in March 2020 as the COVID-19 pandemic began to take hold across the country and many businesses were forced to close or trade under restricted conditions. 

From June, the ATO began “engaging” with businesses that have overdue debt and lodgement obligations, following a “help and assist” approach, while still pausing most of its compliance activity in this area and by November 2020 had turned its attention back to “more traditional activities”, including by recommencing small business audits. 

Members of the small business community have previously urged the ATO not to return to “heavy-handed tactics” when pursuing small business debts, which has been estimated to be as much as $21 billion.

In early March, former small business ombudsman Kate Carnell said she was concerned there may be a return to “extreme enforcement actions” that were prevalent a number of years ago, including the use of garnishee notices. 

Such actions “crippled small businesses”, said Carnell, who said the ATO must use its powers “proportionately and appropriately, particularly as small businesses work to get back on their feet”.

ATO’s independent review panel made permanent

One avenue that small businesses may be able to use if they disagree with the findings of an ATO audit is via the tax office’s small business independent review service, which the tax office announced in March will now be made permanent. 

The service has been piloted since 2018, during which time more than 1,200 small businesses have been offered the option to use it and more than 180 have done so. 

The service is designed to offer small businesses a faster and more cost-effective way to resolve disputes with the ATO, and is available to small businesses with up to $10 million in annual revenue. 

The service covers disputes about income tax, GST, excise, luxury car tax, wine equalisation tax and fuel tax credits; however, disputes related to employer obligations, such as superannuation and fringe benefits tax, are not covered. 

In a statement at the end of March, ATO deputy commissioner Jeremy Geale said participants in the service pilot reported the process was “fair and independent” regardless of the outcome of their review. 

“Independence is critical when handling a dispute, so we ensure each and every independent review is done by an officer from a different part of the ATO who was not involved in the original audit,” he said. 

If a small business opts to use the service, the independent review is free and done prior to the ATO issuing amended assessments or raising any debts. Small businesses can request a review at any state of a dispute. 

More information about the independent review service is available on the ATO website here.