An ATO initiative designed to revive old tax debts has been likened to the ill-fated robodebt scheme, with taxpayers required to prove authorities wrong or pay up.
The tax office has sent out thousands of letters advising recipients they have on-hold tax debts, ranging from a few cents to thousands of dollars, that will be extracted from future refunds.
ATO warns small business to stop using tax to ‘prop up’ cash flow
Small business operators are increasingly using unpaid tax and superannuation liabilities to “prop up” their cash flow, attracting growing scrutiny from the Tax Office, second commissioner Jeremy Hirschhorn says.
Mr Hirschhorn – among contenders to replace outgoing commissioner Chris Jordan in the top job next year – will tell Tuesday’s Financial Review CFO Live Summit, the agency has seen an increased reliance on unpaid tax and flagged stronger compliance action in 2024
Jeremy Hirschhorn will address the CFO Live Summit on Tuesday. Michael Quelch
Mr Hirschhorn will say more than two-thirds of the Tax Office’s $50 billion in collectable debt is currently owed by small firms.
The tax gap – the estimated difference between what the ATO collects and what it would have collected if every taxpayer fully complied – for small business is 13 per cent, far higher than the 4.2 per cent gap for large companies.
“During the pandemic we took a different audit posture with individuals and small business, chased fewer lodgments and recovered less debt,” he will tell the country’s top finance chiefs in Melbourne.
While we resumed stronger action in late 2021, we have observed a behavioural shift as to the priority of paying tax and super. We are concerned with an increased reliance on unpaid tax and unpaid super to prop up the cash flow of some businesses.”
While the ATO seeks to work with business operators to recover tax liabilities, Mr Hirschhorn will say officials can report debt information to credit reporting bureaus, where engagement is not forthcoming.
Since July, the ATO has handed over debt information on more than 10,500 businesses with significantly overdue and undisputed tax debts exceeding $100,000.
The ATO’s recent annual report showed the debt book had increased by 89 per cent in the four years to 2023, reaching $50.2 billion at June 30. Net tax collections in 2022-23 were $576.2 billion, up by more than $60 billion, or nearly 12 per cent, over the previous year.
Nearly 1.3 million so-called “client engagement activities” – including tax audits and actions to stop incorrect claims and dodgy deductions – added $7.7 billion.
Small business has consistently beat out large companies and individuals to maintain the largest tax gap. Mr Hirschhorn blames key drivers including dishonest operators in the cash economy, and a minority who make honest errors.
“Our ambition here is to build a digital-first ecosystem to help small businesses comply with their tax and super obligations, by moving tax reporting, or payment, closer to the tax event through greater integration of ATO systems with the natural systems of their businesses,” he will say.
Mr Jordan said in July he would not seek another term as Commissioner of Taxation. A merit-based recruitment process is understood to be close to completion, with outside candidates and one overseas-based person reportedly in the mix.
Profit shifters beware
Mr Hirschhorn will say uncertain economic conditions are putting large corporate and public organisations under the spotlight, including over their tax affairs. But many firms in Australia have a good story to tell about their compliance with tax rules, if they are prepared to engage in greater transparency.
Net tax collections in the 2022-23 financial year were more than $37 billion higher than budget forecasts. Australia’s 2700 largest corporates paid a record $83.8 billion in income tax for 2021-22, boosted by high commodity prices and high levels of voluntary tax compliance.
“Whilst all industries contributed more tax, the substantial increase can be attributed to the mining sector which contributed just over half of the overall results in 2021-22, compared to less than a third in 2017-18.”
He will warn large Australian businesses and multinationals engaging in profit shifting and tax avoidance that they will be caught out.
“Our ability to invest our resources to scrutinise the affairs of these businesses only intensifies as more and more taxpayers demonstrate high levels of compliance. For businesses operating in this space, it’s not a matter of if you will be subject to investigation, rather when.”
Andrew Leigh, the assistant minister for competition, charities and treasury, will tell the Summit the government is determined to fix a deterioration in competition in Australia in recent decades, including through its stand-alone review and a new taskforce in Treasury.
He will say the weakening of competition intensity has probably contributed to Australia’s declining productivity performance in recent decades.
“We need innovative businesses more than ever to help drive the transition to net zero, to make the most of emerging data and digital innovations, and to seize the opportunities from the growth of the care economy,” Dr Leigh will say. “A dynamic and competitive economy can help harness those opportunities.
“It is important for existing industries, too, so they can better manage change, build resilience and work more effectively. Making our economy more competitive is critical for tackling cost-of-living pressures now and laying the foundations for future growth.”
Tom McIlroy is the Financial Review's political correspondent, reporting from the federal press gallery at Parliament House. Connect with Tom on Twitter.Email Tom at thomas.mcilroy@afr.com
The break-ups of the fabulously wealthy are usually shrouded in mystery (and non-publication orders). So it was with rare and unexpected relish that readers of The Sydney Morning Herald were on Monday treated to some of the details of Mark Carnegie’s split with Tanya Nelson Carnegie, courtesy of a rather peculiar judgment enforcing the execution of a term sheet the two signed in 2021.
Taking one’s former wife to court 15 years after one’s separation is hard to do covertly. But evidently, some things are worth the publicity.
For the purposes of taxation, Mark Carnegie isn’t a Kiwi (yet). Michael Quelch
In Carnegie’s case, at stake was a $13 million tax boon arising out of his move to New Zealand. That nation grants new Kiwis a four-year reprieve from being considered residents for the purposes of taxation. Carnegie’s transitional tax residency window shuts in January, leading to his haste to expatriate $35.4 million in foreign income from a family trust. This was being frustrated, until the judgment, by his ex-wife not signing some paperwork.
Carnegie’s going to such lengths to take advantage of New Zealand’s legal tax exemptions is worth remembering the next time the philanthropist, crypto investor and public policy enthusiast takes a position on Australia’s taxation system.
Its main issue, he was telling all who would listen a decade ago, is that it didn’t tax the wealthy enough.
“I have for some time believed that the Australian taxation system is tilted a little too much in favour of the upper end of income earners,” he wrote in a submission to the Gillard government’s tax forum in 2011. He wanted the wealthiest 15 per cent of Australians to pay 15 per cent more tax, through a range of measures such as family trust reforms or a cap on negative gearing deductions.
He was still banging the drum four years later in 2015, telling the then Abbott government that he had few delusions about its willingness to implement much-needed higher taxes. “Tax needs to fall disproportionately on the rich – everyone agrees on that now,” he told this publication then.
Antipodean Warren Buffett routine
But surely the amount of tax paid by the rich in an allegedly progressive tax regime is affected by their being able to do things like, say, lobbing a suit in the NSW Supreme Court to smooth over a few filing difficulties with an ex-wife? Or to easily relocate themselves to their luxury properties in jurisdictions such as New Zealand, among other wealthy migrants attracted by that nation’s lack of a capital gains tax?
While privately partaking of a legal tax minimisation strategy, in this case revealed only because his ex-wife stopped returning his letters, Carnegie simultaneously maintains his Antipodean Warren Buffett routine, proclaiming himself not the kind of businessman motivated solely by the lure of a dollar.
Others don’t know when to stop. Others are motivated by something “deep and dark inside their soul”, or the score of their personal net worth. Not Carnegie, who mused on The Australian Financial Review’s How I Made It podcast this month that everyone just wanted to pay off their mortgage, have a decent holiday, care for their parents into old age and give their kids enough that they can do everything but not so much they can do nothing. “Beyond that, what do you need it for?”
The podcast revived Carnegie’s favourite self-description, apparently first coined by John Singleton, that he had the good fortune to be born with both a silver spoon in his mouth and a chip on his shoulder. The chip may inspire him to do things such as funding the Australian Council of Social Service to model how to shield the poor from tax increases, or to engage in all sorts of other charitable endeavours. But the silver spoon, we’d suggest, has other priorities.
The country’s most expert opinion and analysis. Sign up to our weekly Opinion newsletter.
Myriam Robin is Rear Window editor based in the Melbourne newsroom. A Rear Window columnist since 2017, she previously reported on financial markets and media. Connect with Myriam on Twitter. Email Myriam at myriam.robin@afr.com