by Allison Menzies

Following an expose presented by Four Corners, the ATO has been forced to defend itself against allegations of bullying towards small and medium enterprises, which some business owners claim has placed them not only in emotional, but financial distress. The ATO has vehemently denied these claims, insisting that the stories uncovered in the Four Corners investigation are representative of none but a small minority of SME disputes.

Allegations of the ATO’s inappropriate conduct to meet revenue targets include a whistle-blower’s recount of how instructions were given to Tax Office staff to issue garnishee notices over taxpayers who had been assessed as owing the ATO money, without prior assessment of their personal circumstances. These garnishee notices often result in recurring payments from a taxpayer’s bank account, whenever money available. Often these transactions leave businesses without sufficient funds to pay wages or meet other financial obligations.

It may be that this alleged bullying is a result of the ATO seeking out ‘easy pickings’ – pursuing businesses which lack the financial means to dispute ATO assessments and heavy-handed collection practices. A brief look at corporate tax treatment may be indicative that SMEs are more likely to be targeted by tax officials due their comparative lack of financial backing to dispute Tax Office assessments and subsequent debt collection actions than their larger counterparts.

Take for example, the fact that Origin Energy, Energy Australia, and Virgin Australia have not paid corporate tax since 2014, despite reporting billions of dollars in revenue1, thanks to clever accounting and non-cash deductions. Perhaps corporate transparency laws and governance principles are enough to ensure that the accounting practices of large companies are above-board; or maybe it is easier to believe that they are.

Considering the high activity rate of entries and exits around SMEs, and that many small business owners are everyday people, one would imagine that it would be more beneficial in the long term for the ATO to take a more educationalist approach, particularly for businesses that have been operating for fewer than four years (i.e. those at highest risk of failure2), rather than the current authoritarian methodology alleged by Four Corners.

With regard to this, there may be impending solutions to the issue. In August 2018, the Labour party proposed to to introduce a new department and second Commissioner within the ATO, with the specific purpose of dealing with SME disputes and resolution3. Further, the Four Corners allegations have prompted the Inspector General of Taxation (IGT) to conduct an internal review into the ATO’s use of garnishee notices4. However, it should be noted that the IGT’s investigations do not have a defined date of completion, and Labour’s proposal will not be an immediate process, should it come to fruition at all.

Until such time as any relevant changes are put into practice, it would be wise for the owners and directors of SMEs to exercise prudence by ensuring they are properly informed in relation to their obligations and to undertake measures to maintain financial security. For instance, it is common practice for business owners to open secondary bank accounts independent of the taxpayer’s name in order to hold funds in protection from garnishee transactions. Additionally, while self-education is important, merit can be placed in seeking advice from professionals such as business advisory specialists or taxation agents.

If your company is facing difficulty in meeting its tax obligations or is experiencing rising debt, consider contacting Veritas Advisory to speak to an insolvency specialist about your circumstances and the possible avenues of resolution available. 

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1 As per the Australian Tax Office’s Corporate Tax Transparency Reports from 2014 to 2018, which provide the total profits, assessable income, and taxable incomes of 2,000 major Australian companies 

2 Equifax 

3 Australian Financial Review, Misa Han 

4 Australian Government Inspector-General of Taxation 

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