The past couple of years has been nothing short of a rollercoaster ride. From COVID-19, to bushfires, to floods, Australia has seen it all.
During this time of unprecedented events, the ATO has been quite accommodating to the needs of Australian taxpayers, including:
- Administering the JobKeeper and Cash Flow Boost programs;
- Allowing generous payment plans for tax debts; and
- Temporarily ceasing debt collection activities.
It has not been uncommon, in our experience, for taxpayers to basically use the ATO as another credit facility to help them through these tough times.
However, with the Government spending $290 billion in economic stimulus measures during the pandemic (e.g. JobKeeper – $90 billion, Cash Flow Boost – $35 billion, Instant Asset Write-off + Loss Carry Back – $20 billion), there is now pressure on the ATO to help reduce the deficit.
The Tax Gap
The tax gap is an estimate of the difference between the amount of tax the ATO collects, and what it would have collected if every taxpayer was fully compliant with tax law.
The latest data available from the 2018-2019 financial year (released in October 2021), estimated the tax gap at that time to be $33.5 billion (breakdown below).
Although official data is not yet available, it has been estimated that the tax gap has grown significantly as a result of COVID-19.
What are the ATO doing about this?
Although the ATO won’t publicly admit it, we have noticed additional ATO activity across the board, which we believe is just the beginning of the ATO trying its best to close the tax gap. Such activity we have seen lately includes:
- Director Penalty Notices (DPNs) being issued to Directors personally, for tax debts owing by businesses;
- Increased phone calls from ATO call centres, chasing up overdue tax debts and lodgements;
- Capacity to pay requirements being requested, before payment plans are being approved;
- Letters being sent to taxpayers, advising that tax debts (over $100k) will be reported to credit reporting bureaus; and
- Increased application of late lodgement penalties and interest charges.
What do you need to do?
The key to managing the ATO in these situations is:
- Where possible, make sure you lodge everything (tax returns, BAS etc.) on time, even if you don’t have the means to pay any outstanding amount; and
- Communicate with the us/the ATO to explain the situation, this is not a time to stick your head in the sand!