In 2017–18, 3.8 million small businesses (with an annual turnover of less than $10 million) were registered in the tax system. Collectively, small businesses owe nearly two thirds of collectable tax debt and are almost twice as likely to have a debt with the ATO compared to other taxpayers. The ATO has introduced a range of educational and support material designed to inform small business about their tax liabilities and help prevent them acquiring a tax debt.
As with other types of taxpayers, a key challenge for the ATO with respect to small business is to target its resources to those areas of greatest compliance risk, while ensuring that debt collection policies and practices are equitable and uniformly enforced. This particularly relates to firmer and stronger debt actions, such as garnishee notices, director penalty notices, departure prohibition orders and company wind up processes initiated by the ATO.
Tax debt owed by small businesses makes up 63 per cent of overall tax debt, with collectable debt for small businesses totalling $15 billion in June 2018. Debt collection requires the deployment of strategies and actions by the ATO using the powers given to it under legislation. These strategies and actions were called into question in the media in April 2018. In response, the Commissioner of Taxation requested that the Australian National Audit Office (ANAO) undertake an audit into the effectiveness of the ATO’s approaches to debt collection associated with compliance and dispute activities. Individual cases were not reviewed.
The objective of the audit was to assess the effectiveness of the ATO’s management of small business tax debt arising from compliance activities. The high-level audit criteria were:
- the ATO has effective arrangements for managing small business tax debt arising from compliance activities;
- the ATO’s processes provided for consistent management of small business tax debt arising from compliance activities; and
- the ATO effectively monitors and reports on the collection of small business tax debt arising from compliance activities.
In undertaking the audit, it was not possible for the ANAO to assess the ATO’s management of small business tax debt arising from compliance activities separately from its overall management of small business tax debt. Consequently, the ANAO was unable to conclude on the effectiveness of the ATO’s management of small business tax debt arising from compliance activities as a separate population. The ANAO has assessed the effectiveness of the ATO’s management of small business tax debt in its entirety and formed a conclusion on that basis.