A $10 billion deficit: Small businesses are Australia’s biggest tax dodgers, ATO says

The ATO has been given more money to chase black economy activity and will be targeting cash businesses over the coming months in a bid to address the multi-billion-dollar small-business tax gap.

In a speech delivered to the Tax Institute’s national convention last week, ATO commissioner Chris Jordan claimed small businesses are the worst offenders when it comes to dodging tax.

Citing soon-to-be-released tax gap figures for 2019, Jordan said there’s $10 billion in unpaid small-business tax outstanding.

Of that figure, at least $6 billion is believed to come from deliberate black economy activity, helping inflate the small-business tax gap to between 10% and 15% of total sector revenue, which is higher than other market segments.

“Although our small-business population is very diverse, the tax gap program has highlighted some common issues, like not declaring all income or failing to account for private use of business assets or funds,” Jordan said.

Armed with new funding to tackle black economy activity, Jordan said small businesses operating on a “cash-only” basis are on notice.

“You will see an increased focus in this area through both physical visits to “cash-only” businesses and better use of data analytics.

“It will become much harder to operate outside the system, or to report income below what your lifestyle suggests,” Jordan said.

The ATO recently published an updated set of small-business benchmarks and warned they will be reviewing businesses which are found to be outside of accepted parameters ahead of the end of financial year.

While the small-business tax gap has always been quite large, bigger firms have also come under scrutiny for tax dodging recently, with a report late last year on 2016-17 payments finding a third of Australia’s largest companies paid no tax.

Jordan also spoke in more detail about a recent Inspector General of Taxation review into allegations made by Four Corners last year.

The review cleared the ATO of engaging in a small-business “cash grab” but did find evidence of isolated garnishee issues in an Adelaide office.

In particular, it was claimed one ATO manager joked with colleagues about issuing five garnishee notices in one hour.

Jordan described media commentary in 2018 as “unfortunate” and allegations against the ATO as “concerning”.

“It is these allegations about garnishee practices that have now been refuted after exhaustive investigation. A proper investigation by the inspector general has found them to be false,” Jordan said.

“I believe that people genuinely want their institutions to be reliable, moral and community-focused.”

Jordan made no comment on the behaviour of ATO debt collection staff working out of Adelaide.

“People want the ATO to be doing its job properly and to see that being done, and to have confidence that it is the case.

“And while the ATO is not perfect, when mistakes are made, we should own them and, if necessary, implement improvements,” he added.

Jordan also spoke about the government’s tax clinic trial, which as SmartCompany reported earlier this year, the ATO administers.

Tax office administration of the program has raised questions about its integrity because part of the role of the clinics is to help taxpayers who have disputes with the ATO.

Jordan said the ATO “doesn’t play a direct role in the running of the clinics”.

It does, however, hand out funding for the clinics via its grant program and is responsible for recording and reporting on the trial to the government.

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