THE retiring Australian Small Business and Family Enterprise Ombudsman, Kate Carnell has urged the Australian Taxation Office (ATO) to refrain from returning to heavy-handed tactics, "with collection action expected to ramp up as debts owed hit a record high".

Ms Carnell said she was concerned small businesses may be subjected to the harsh debt recovery actions inflicted prior to the COVID crisis, given collectable debt owed to the ATO has peaked at $34 billion – the majority of which is owed by small business ($21 billion).

“The ATO rightly took a softer approach towards small businesses during the COVID crisis, but we don’t want to see a return to the extreme enforcement actions my office brought to light just a couple of years ago,” Ms Carnell said. “Previous actions such as garnishee notices have crippled small businesses, so it is critical the ATO uses its powers proportionately and appropriately, particularly as small businesses work to get back on their feet.”

The Ombudsman has called for a range of reforms to address her concerns regarding the ATO’s treatment of small businesses in a new report: A tax system that works for small business.

Recommendations include waiving interest and penalties for a first offence, restricting ATO review and audit periods to one year when a small business is using an accredited tax or BAS agent and immediately ceasing debt recovery action against a small business that is seeking a review of its tax position, regardless of whether the dispute is before the AAT.

“It’s important that small businesses in dispute with the ATO are given a fair go,” Ms Carnell said.

“The ATO quite reasonably sees its role as an enforcer of taxation laws, but too often it loses sight of the people running the business. This is particularly evident in the area of debt collection, but it’s exacerbated by our overly complicated tax laws.”

The report focuses on small, achievable changes to the tax system that would make a huge difference to small businesses.

This includes making compliance easier by allowing small businesses to opt-in to GST being collected and remitted directly to the ATO at the electronic point of sale as well as income averaging measures that would help small businesses pay the right amount of tax in good years and bad.

“Tax compliance costs small businesses about $90 per $1,000 turnover (according to the NAB Supporting Economic Recovery – what we can do for small business report) - about 225 times more than the cost for big business ($0.40 per $1,000 turnover),” Ms Carnell said.

“Under the current system, small businesses are the ATO’s unpaid tax collectors including everything from the GST to PAYGW.

“Over the past few decades, administration responsibilities have shifted from the government to small businesses, which face significant penalties and interest if an honest mistake is made.

“That’s why our report makes a number of recommendations to take this unnecessary burden off the shoulders of small businesses. At the end of the day the taxation system should be easy to get right and hard to get wrong.

“Now is the time to deliver a system that works for the small business sector and will allow them to achieve greater productivity, return to profitability and grow employment – especially given so many small businesses have endured enormous challenges over the past 12 months.”  

www.asbfeo.gov.au

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THE Australian Small Business and Family Enterprise Ombudsman, Kate Carnell has welcomed legislation introduced into Parliament today, overhauling the insolvency framework.

The legislation tabled will make is easier for small businesses to restructure or wind up and are in line with the recommendations made in the Ombudsman’s Insolvency Practices Inquiry final report, released in July.

“These landmark reforms will be a game-changer for small businesses, particularly those that have been heavily impacted by the COVID crisis,” Ms Carnell said.  

“Instead of finding themselves on an express train to winding up with no control over the process, these changes will ensure small businesses will have the option to turn their business around, giving them a fighting chance to survive.

“Crucially, by moving to the ‘debtor in possession’ model, small businesses can restructure their debts while remaining in control of their business," Ms Carnell said.

“For those businesses that sadly need to wind up, the liquidation process will be simpler, faster and cheaper. 

“We know the pandemic, which followed a devastating season of natural disasters, has driven many small businesses to the brink.

“Modelling by Deloitte Access Economics estimated about 240,000 small businesses are at risk of failure.

“This is exactly why small businesses need to sit down with their trusted and accredited financial adviser for a viability assessment as a matter of urgency," she said.

“It is this critical first step that small businesses would be more likely to make if the government adopted our recommendation to establish a small business viability program, providing small business owners facing financial stress with a grant valued up to $5,000 to access tailored advice on the state of their business.

“Unfortunately small businesses with cash flow issues, compounded by falling revenue, may not seek out professional advice because it is deemed unaffordable. This could prove to be devastating for the business, staff and family," Ms Carnell said.

“Ultimately this legislation represents enormous progress and if passed, the new insolvency process will be available to small businesses from 1 January 2021.

“Crucially, this will give otherwise viable small businesses a chance to recover, preventing a wave of unnecessary insolvencies.”

www.asbfeo.gov.au

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THE Payment Times Reporting Bill 2020 and Payment Times Reporting (Consequential Amendments) Bill 2020, which are now before Parliament, will go a long way toward helping small businesses that are struggling with cash flow issues once it is passed, according to the Institute of Public Accountants (IPA).

“This legislation will bring greater transparency, requiring businesses with over a $100 million turnover to publish their policies including payment times,” IPA chief executive officer, Andrew Conway said.  

“The IPA’s submission to the Senate Education and Employment Committees highlighted a number of key areas to be addressed including the recommendation that legislation should prescribe maximum payment times, preferably 30 days or less.

“Without a prescribed period of time, there will be room for ambiguity or arbitrage which can be easily exploited by large businesses.  This reflects the ASBFEO’s review of payment times and practices in 2017," Mr Conway said.

“The legislation sets the path for a new regime of fairness in terms of payment times and practices.  This new environment should be reviewed within two years of the legislation to ensure the behavioural change that is a key objective of the legislation has been embedded in our society.

“The Bill prescribes the creation of a Payment Times Reporting Regulator which will be a senior executive employee in the Department.  As is the case with other regulators, we advocate that this role should be adequately resourced to instil the importance of the role and to ensure it is effectively meeting the requirements of the function," he said.

“We are, however, concerned that the Regulator can extend the reporting time with no limit to the extension.  This is far too broad and open-ended, and we recommend a prescribed time period, say, no more than three months.

“One of the most pleasing things about the proposed legislation is the penalty regime; we believe the penalties prescribed are of sufficient weight to drive the desired behavioural change.  Reputational risk should be a key driver of behavioural change.

“The IPA is also pleased that the focus in the legislation’s objectives is on ‘payment terms and practices’. In our view, you cannot have one without the other," Mr Conway said.

“Some large businesses use excuses such as inaccurate invoicing, missing invoices or make changes to contract terms and conditions – anything to extend payment times.  It is essential these practices change and if the legislation is successful in bringing this behavioural shift, then the flow-on benefits to small business will be realised."

www.publicaccountants.org.au

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