Chapter 3 Theme 2 – Compliance
This chapter examines matters relating to encouraging and enforcing
- Debt recovery and the
global financial crisis
- Small business
- Training for small
Debt recovery and the global financial crisis
Committee members have, over time, received anecdotal evidence from constituents
that there have been changes in the way the ATO conducts its debt recovery
operations, and took the opportunity at the public hearing to discuss the
matter in further detail with the Commissioner of Taxation.
The Committee noted that the ATO had put in place more flexible debt
recovery arrangements during the global financial crisis to support viable
businesses in difficulty, and asked whether there had been any changes to debt
recovery as the global economy had again begun to stabilise.
The ATO agreed that they had taken a decision at the start of the global
financial crisis that they would try and help taxpayers where possible, by
providing payment arrangements including, in some cases, interest free
arrangements, to ensure businesses could continue to operate through short term
financial difficulties, and that this approach hadn’t changed.
The Commissioner noted that while they have taken this approach, that in
cases where a taxpayer had consistently defaulted on payment arrangements,
other action had to be taken:
...in situations where keeping the business going may not be
in the best interests of the people themselves, and certainly disadvantageous
for other businesses that are paying their tax position - we have taken what we
call firmer action which might include garnisheeing. You have seen an increase
in liquidation, which we put into our report. But it is not so much that all of
a sudden we are taking a different approach; we are just applying a tailored
approach to the facts and circumstances of the taxpayer in the context of those
The ATO also advised that it had developed software resources to enable
ATO staff to discuss with taxpayers their business position and to get a more
objective assessment of continued viability. The Commissioner stated:
That has meant that, in some situations, we have actually
said ‘No, we really cannot give you a payment arrangement or defer firmer
action because in some way we actually think that you might be trading in a
position, perhaps, of insolvency.
The submission provided by the ATO noted that there has been an increase
in the number of business wind-ups initiated by the ATO, rising from 2% of total
bankruptcies and 10.9% of total wind-ups in 2010-11 to 2.3% of total
bankruptcies and 14.4% of total wind-ups in 2011-12. The submission also noted
that the ATO used external consultants to conduct independent reviews of ATO
management of insolvency cases.
The Committee asked whether there were circumstances in which the ATO
would vary an agreed payment plan to more quickly pay off a tax debt without
the consent of the taxpayer. The Commissioner replied that, to his knowledge
this had not occurred, and it was “not a general occurrence.”
In considering the ATO’s approach to debt management, specifically
through the lens of small business, Mr John Malkovich gave the Committee a
summary of his observations over time:
With debt management, initially there were issues with some
people saying the ATO was a little too hard in approaching debt management. But
that softened up a lot over the years and it’s no longer one strike and you are
out. We really pushed the issue that if you are a good taxpayer meeting your
BAS [Business Activity Statement] on time and doing everything you should, if
you do not get it in on time once then they do not come down on you hard.
Instead you get a letter saying, ‘You’re a great taxpayer but you haven’t got
your BAS in on time this time, so make sure you do it next time.’ I think that
is a wonderful touch.
Small business services
The ATO’s ‘No strings attached’ small business advisory service
The ATO reports that it offers free, targeted, tailored small business
assistance, and advises that information obtained as part of the service will
not be used to commence an audit.
The ATO had taken steps to promote the service, working with industry, trade
and business associations. The ATO emphasises that businesses would not be
subject to an audit if they were found to be operating contrary to their
Mr John Malkovich described the service as ‘fantastic’ and stated:
The ATO is going out to talk to small business people.
Critical to that is that the ATO goes out and says they are not there to use
this as a trigger to do an audit, but they are genuinely there to help with
business processes, including ABN [Australian Business Number] registration,
super, record keeping and things like that.
Small business benchmarking
The ATO noted in its submission that small business benchmarks were
calculated by the ATO from information reported on tax returns and activity
statements, and enabled businesses to compare their performance against similar
businesses in their industry.
The ATO calculates small business benchmarks calculated from income tax
returns and activity statements of businesses operating in similar industries
to assist businesses in comparing their performance against similar businesses.
66 per cent of tax agents surveyed by the ATO refer small business benchmarking
It was further noted that benchmarking enabled the ATO to identify
businesses that may be avoiding tax obligations by failing to report income,
and that businesses significantly outside their benchmarks may attract the
attention of the ATO.
The Committee was also advised that small business benchmarking had
shown changes in taxpayer behaviour – ATO targeting of six industries had shown
significant increases in the number of businesses that now report income in the
same range as their industry peers, when they previously reported income below
that of other similar businesses.
The ATO’s philosophical approach to supporting small business
The ATO outlined its philosophical approach towards small business:
The heart of what we do is helping businesses understanding
their rights and obligations and making it easy as possible for businesses to
properly participate in Australia’s tax and superannuation systems. We
recognise the diversity of small business and tailor our services accordingly.
The ATO described its approach to businesses in short term financial
difficulty as ‘empathetic’, and that it sought to support businesses through
tangible assistance such as business assistance visits.
The Committee was advised that these business assistance visits were
targeted at businesses in financial difficulty, and had led to a reduction in
compliance costs for all businesses visited. Further, these visits had resulted
in increased responsiveness on behalf of the part of small business - in
- the average time for
visited businesses to lodge activity statements was reduced by 11 days;
- visited businesses
made 13 per cent more electronic lodgements;
- they had lower tax
debt on average than the broader small business population; and
- were less likely to
be subject to further compliance action.
Related to this, the ATO informed the Committee that strategies focused
at certain groups of businesses yielded similar results. In 2011-12, the ATO
provided information to cafes and restaurants, real estate services and
carpentry services. As a result, voluntary statements lodged for these targeted
industries increased on average by over 15 per cent in the relevant period.
Looking further at the issue of supporting viable businesses in
short-term difficulty, the ATO also supported businesses to avoid bankruptcy or
insolvency by using interest-free activity statement payment arrangements where
it was appropriate to do so. The Commissioner noted
there were 152,007 small business payment arrangements to the value of $1.45
billion in effect at 30 June 2012.
The ATO also discussed the way it informs business of significant reforms.
Tools available to the ANAO included:
- a funded media
- targeted, direct mail
to employers; and
- targeted, direct mail
to intermediaries, such as accountants and software providers.
It was also noted that the ATO distributed a monthly small business
newsletter that reached approximately 1.4 million businesses, and also used its
Online Small Business Forum to disseminate information to business operators.
Simplifying lodgement for small business
The ATO reported in its submission that a review was currently underway
which sought to find avenues to simplify lodgement processes for medium, small
and micro businesses.
The ATO announced that the process would consider opportunities to
leverage data matching to automate components of various business returns
through pre-filling. It also identified the following measures aimed at
reducing the amount of information a business is expected to provide in its
- removing around 30
labels from the annual returns;
- halving the length of
the capital gains tax schedule;
- deleting the capital
- deleting the personal
services income schedule; and
- reallocating a number
of labels from the tax returns to the international dealings schedule to better
target the collection of that information.
The small business commissioner
At the public hearing, the Tax Institute advised the Committee that
while the Government had announced the creation of a small business
commissioner position, that it had not yet been filled, and that it would be
beneficial if the position functioned as a single point of contact for small
The Tax Institute identified the role a small business commissioner
could play as a focal point for regulatory matters; a role that was identified
at an event run in conjunction with the Council of Small Business of Australia
(COSBOA) earlier in the year:
COSBOA and the Tax Institute earlier this year held what was
effectively a small business roundtable and we discussed not only tax but all
of the different regulatory issues that small business face. Not only is it a
challenge for small business to meet those, but in raising concerns there are
about 16 different departments for them to go to. That is unsustainable. So the
small business commissioner position, when it is filled, I think will be an
important liaison point and intermediary for small business.
The Federal Government has since appointed Mr Mark Brennan to the role
of Australian Small Business Commissioner, noting the role of the Commissioner
is to provide information, advice, advocacy and
representation of small business interests within the Australian Government.
Training for small businesses
Proposal for mandatory training
John Malkovich spoke to the Committee about the value of a basic
knowledge of business fundamentals before a new business owner starts out:
I think for people starting off initially their biggest
driver to get out there is to make money. So, with anything else that is above
and beyond that, they think, 'I'll just put that on the backburner for now.’
...As to getting them to do a course, I have thought about
this quite a bit and discussed it with some of my colleagues. Before you can
get an ABN, an ACN [Australian Company Number], a business name or anything
like that, there could be a form that you complete that asks for ID, what
industry you are going into and says, 'Fantastic. Have you finished the
compulsory course in business fundamentals are your local TAFE [Technical and
Further Education] or CIT [Canberra Institute of Technology]? If you haven't,
why not?' You could also get some recognition for prior learning.
...Show them how profit and loss work. Explain to them that
it does not matter what the profit and loss are; it is what the cash flow is
doing and whether or not the money is coming in. A simple thing is having an
offset account where you put one-tenth of your takings in as your GST so you
can meet your obligations. It is simple things like that...
...with that extra knowledge, they are in a better position
to run a more successful business. They are in a better position to realise
that they have obligations to the Australian government to pay their tax...
...The benefit is that, when they know all of that, they are
less likely to default on tax payment. Later, if they do get a letter from the
ATO saying they have not done something, ignorance is no excuse, because they
have done the course and know that they needed to pay tax and pay their GST. So
those are the real benefits of it.
The ATO reported on its program called Right from the Start, a web-based
program with tailored information about small business support offered by the
ATO, including tips and fact sheets. The Committee was advised that the ATO had
been trying to expand its communication with small business and to promote
knowledge of its online resources.
ATO online resources
The ATO also outlined the electronic tools and calculators it provided
on ato.gov.au to enable small businesses to self-assess or calculate tax
obligations or entitlements, and also to access guidance tailored to their
small business requirements. The ATO outlined several key online tools for
small business, with all established tools having anywhere from 13,000 to
129,000 views over the first five months of 2012:
- Is your business tax-ready?
- GST property tool
- Research and
- Building and
construction industry – employee/contractor decision tool
- Capital Gains Tax
small business concessions tool
- Payment arrangement
Philip Halton of COSBOA reported that in his role with the Australian
Livestock and Rural Transporters Association they had worked to ensure that its
members were able to use various price calculators to assist them in
understanding potential costs to assist with setting appropriate prices for
services. It was also noted that COSBOA had created a calculator to assist
businesses in estimating their costs after the introduction for the price on
Paul Drum of CPA Australia informed the Committee that his organization
had been conducting webinars and providing podcasts using its own facilities to
enable the ATO to engage with tax professionals through a conduit other than the
The ATO and social media
The ATO’s submission reports on its use of social media, with the ATO
describing the benefits of social media to improving compliance:
Social media enables us to provide practical guidance and
information in a time, manner, and place suitable to taxpayers. These tools are
a valuable alternative for taxpayers, giving them the ability to receive a
response from us in a manner and location convenient to them. The channels also
enable us to scan social media comments and conversations to understand how the
community perceives us, what issues are a priority for the community, and to
The submission also outlined the status of the ATO’s social accounts as
at 9 August 2012:
- Facebook – launched 1
July 2011, 2,110 ‘likes’
- Twitter - launched 1
March 2010, 9,749 ‘followers’
- YouTube – launched
July 2011, almost 100 videos uploaded, and more than 197,258 views of ATO.
Additionally, the ATO advised that it used its Twitter page to provide
the latest information on new measures, changes to legislation, reminders,
information on system outages, and scams.
In its appearance before the Committee, the ATO noted that its presence
on social media was still relatively small.
Considering rural and regional Australia, COSBOA noted that in these
areas, traditional social networks were still the most trusted source of
information. In response, the
Commissioner agreed, and reported that this was one of the reasons the ATO
sought to provide information through representative bodies, journals and
contacts, and to try and engage the public where possible through representative
The Committee notes the assurances from the Commissioner that there has
been ‘no change’ in the ATO’s approach to
debt recovery as the pressures from the global financial crisis have eased.
There are clear benefits from the ATO adopting a flexible approach to debt
recovery, and this approach is preferred to a punitive approach in which
businesses are closed, and jobs are lost.
The Committee is also interested to see the improved analytical systems
that enable the ATO to detect businesses that may be close to insolvency.
Assessing struggling businesses to determine their viability provides an
increased level of support for both business owners and their employees and
creditors. It also serves to protect the tax base.
It is pleasing to hear of initiatives like the ‘no strings attached’
small business advisory service being used to provide a concrete example to
small business that the ATO believes a collaborative approach to compliance is
beneficial. The statistics that show increased compliance after a visit
indicate that the service is a valuable one that has clear benefits both to
small business and to the ATO itself.
Small business benchmarking is another ATO initiative that has clear
benefits both for business and for the ATO. By assisting businesses to compare
themselves with their contemporaries, small business owners are able to see
areas in which they can improve their performance and increase their profits. Side
benefits for the ATO of identifying businesses that may be performing outside
their sector benchmark and therefore may not be fully compliant is obvious and
is an initiative supported by the Committee.
The Committee was interested to hear that 66 per cent of tax agents that
were aware of small business benchmarking had recommended it to their clients.
The Committee believes that number can be built upon and is interested to see
if the ATO can increase this figure in next year’s submission.
Business assistance visits for businesses struggling to meet their
compliance obligations also demonstrate the ATO’s commitment to ensuring
compliance through cooperative rather than punitive measures. By engaging
businesses having difficulties with compliance, the ATO is able to intervene
earlier to assist these businesses and to attempt to maintain their viability.
The Committee does acknowledge, however, that the ATO can, and does take
more serious action where it is warranted. In his appearance before the
Committee, the Commissioner reported that in cases where a taxpayer had
consistently defaulted on payment arrangements, other action had to be taken,
and the Committee acknowledges and supports the use of these measures where it
is required. Further, the Committee notes the comments of the Commissioner that
the ATO is unable to support businesses that are clearly not viable, and
supports the Commissioner’s comments.
The measures canvassed above, should provide sufficient evidence that
the ATO’s actions match their rhetoric when looking at the philosophical
approach they take to engaging small business. The adoption of a proactive,
rather than punitive approach is one that should be praised, and the Committee
hopes to see the ATO continue to think in this way to encourage compliance, and
to use punitive measures only when required.
The Committee also notes the ATO’s review to further simplify lodgement
for businesses, and is pleased to see pre-filling also move to the business
sector from the personal income tax sector.
The suggestion that there be mandatory training for new business owners
was one that interested the Committee, as it clearly came from considerable
thought over ways to improve compliance. The Committee believes that anyone
starting a new business with no previous experience should enter into the
process understanding all of their responsibilities, and that they should draw
from available assistance to ensure they will comply with their tax
However, the Committee is not convinced that compulsory training prior
to engaging in business is the way to go, as it would slow down the ability to
start new businesses. The Committee was also satisfied that the ATO provided adequate
checklists and training resources for new business owners, and that there were
also professional organisations that could be contacted that would extend
assistance. ATO resources on starting a new business are easy to find on on its
website, however, the ATO could emphasise these resources more, and strongly
recommend that new business owners properly go through these resources prior to
opening their businesses.
In a related issue, the Committee was interested to hear that other
organisations were providing calculators similar to those provided by the ATO,
but targeted at specific industries. This valuable support provided by
professional organisations could be better supported by the ATO, and the ATO
should encourage organisations to make sure the underlying assumptions and
figures that inform these calculators are accurate.
That the Australian Taxation Office offer to provide
assistance to professional organisations that provide online calculators
relating to taxation to ensure these resources are based on accurate figures
and assumptions, and that the Australian Taxation Office promote this service
to these organisations.
The Committee was interested to hear the ways in which the ATO interacts
with taxpayers through social media. Its explanation of how it uses its Twitter
account was informative, and the Committee notes the immediacy of this method
The Committee sees a lot of value in the ATO’s YouTube channel as a way
of providing easy to understand advice to taxpayers. The ability to easily
provide information in different languages for business owners and taxpayers of
non English speaking backgrounds is of significant value and can only assist
with ensuring increased compliance.
Touching briefly on Facebook, which is the most popular social
networking tool in Australia, the Committee notes the relatively low number of
subscribers compared to the ATO Twitter account. The Committee notes the format
of Facebook requires users to “like” corporate pages. As this is the case, the
Committee suggests that the ATO consider renaming their page to make it more
appealing to users and to more accurately reflect the purpose of the ATO’s
social media accounts.
The Committee sees promotion of social media as an area that could be
improved upon by the ATO, as its subscription rates are quite low compared with
the number of taxpayers and businesses in Australia. Accordingly, the Committee
That the Australian Taxation Office continue to promote its
social media resources and to seek feedback from business consultative groups
about the usefulness of these resources. Further, that the Australian
Taxation Office determine and report on the effectiveness of these resources
in its submission to next year’s hearing.