Small-business debt accounts for a large portion of the ATO tax gap that currently sits around $33 billion. In its latest estimates, the ATO said small businesses account for more than $12 billion.
“The small business market has always represented a high proportion of the overall tax gap — most of which is driven by the relatively small number of businesses operating in the shadow economy, but also the relatively large number of businesses who make simple mistakes (often due to poor systems or poor advice),” Mr Hirschhorn said.
“Given the real challenges faced by this sector over the past few years, and the deferral of much of our compliance work during COVID, I would not be surprised to see performance stagnate or perhaps deteriorate slightly over time.
“Of course, we also know that a minority of small businesses deliberately try to stay out of the system (in whole or part) and participate in the shadow economy. Often this is driven by potential employees seeking cash wages, and then the business being sucked into cash and off the books transactions.”
In an effort to combat this, Mr Hirschhorn said the ATO believes that the further digitisation of the tax experience for small businesses will be beneficial and it is one of the key focus areas of the office.
“A significant component of the overall ATO debt book belongs to small business — 65 per cent in fact. It represents over $24 billion of the over $37 billion collectable (not disputed) debt,” he said.
“In addition, 86 per cent of the outstanding superannuation guarantee debt is owed by small business employers. I would note here that most of the small business debt is self-reported and therefore undisputed, so our focus continues to be on how we can help those with significant debts to stay engaged with the system and use payment plans to pay off past debt while meeting new debt as it becomes due.”
After putting on pause many of its debt recovery programs over the course of the pandemic, Mr Hirschhorn said the ATO is now getting back to business and will be rolling out strategies to improve small-business tax performance.
“We know that digitally engaged small businesses perform better pre-tax and also meet more of their tax and super obligations,” he said. “There is a huge opportunity for us to work with key players to build an ecosystem where ATO systems are integrated with the natural systems of businesses.”
One of the strategies the ATO is working towards is a future that includes small businesses no longer having to prepare a separate tax return or activity statement — rather, there is a periodic direct data feed from their accounting software to the ATO.
“Of course, this will require clients and their advisers to review and vouch the data feed for completeness and correctness, but will minimise the ‘paper shuffling’ element,” Mr Hirschhorn said.
“As part of this, the ATO may provide certain risk models to the digital service providers (and hence the advisers) so that clients and their advisers might identify mistakes (or simply understand whether they may attract our attention) prior to the data feed being submitted. It should also be possible to align instalments and payments to the amounts generated from the natural system.”
As an interim step, the ATO is considering introducing measures to pre-fill the BAS for PAYG obligations based on STP data.
E-invoicing is also on the agenda with Mr Hirschhorn stating that the ATO “strongly support e-invoicing as a micro-economic reform assisting business, especially small business, and have a stewardship role”.
“But, we do not see it as the natural system for obtaining information about small business’ tax affairs, and not of great use in either identifying non-compliance or assisting small businesses as such, unlike in many other countries, we will not be taking this data onboard,” Mr Hirschhorn said.
