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  • The ATO's current focus areas in the small business market

    Deputy Commissioner Deborah Jenkins

    Speech to the Chartered Accountants Australia New Zealand (CAANZ) Strategic Tax Planning Day

    Sydney, 31 May 2019

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    I’m Deborah Jenkins, Deputy Commissioner for Small Business at the ATO. I have also just taken on responsibility for the GST product at the ATO. Thank you for the opportunity to speak with you today.

    I am responsible for the small business experience, which means I bring together the picture of all interactions the ATO has with small business to identify what issues and changes are impacting them and delivering on our current commitments and plan for the future small business experience we want to create.

    My team and I work in partnership with businesses, tax practitioners and their industry bodies, like CAANZ, and other organisations to create an environment that supports sustainable and viable small business to thrive through education, engagement and assurance activities.

    We are also a regulator and at times we need to take firmer action with those doing the wrong thing to protect the integrity of the system.

    We are committed to helping taxpayers get back on track, and stay on track.

    I acknowledge over the last year or so the ATO has received negative media attention over our treatment of small business. While we don’t agree with all the criticisms, there are always ways we can improve. It has given us the opportunity to take stock of how we work to support small business in their interactions with us and we are making some changes to our processes so that small businesses have a better experience with us.

    I am really excited to be here because there is a lot we can talk about at the moment in terms of how we can work together more closely to support small businesses to grow and thrive. Since I spoke at your planning day last May, we have progressed our program to determine the small business income tax gap. While we aren’t ready to release the gap just yet, this work has given us a range of insights on the behaviours of small business and key issues in the market, and it is going to shape our strategy for supporting small business for the year ahead. I’ll talk to you more about that later.

    I will also talk about what a well-functioning small business looks like to us, what I think you can do to support small business to get it right and what support you and your clients can access. I hope you can leave here today with a range of insights and tips on how you can better support your small business clients in the year ahead.

    What we know about the market

    It is always valuable to start these sorts of conversations by setting the scene with what we know about small business (which we define as having turnover of less than $10 million).

    The approximately 3.8 million small businesses, including 1.6 million sole traders, are an essential part of our economy and a key priority for the ATO. Small businesses are diverse in structure, turnover, number of employees and maturity of business and our interactions with them reflect this diversity.

    They employ more than 5.5 million people, contribute $380 billion to the economy and make up more than 99% of all Australian businesses.

    Behind every small business are busy people that are working hard to build and run their business, contributing 15% of total income tax and 23% of total GST collected by the ATO.

    While 92% of small businesses use a tax professional to lodge their tax return, only 53% use a tax professional to lodge their BAS. We understand that interactions can be diverse, from just lodgment to providing detailed business advice. I will talk more later about the benefit for small businesses of the tax professional providing a comprehensive service.

    We know that many small businesses can find it tough to keep on top of things due to a range of factors like the complexity of the regulatory landscape, relative to the limited resources available to them.

    To put our interactions with them into perspective, in 2017–18 we undertook about 120,000 audits of small businesses across the ATO (that is all tax types including GST).

    These audits related to omitted income, PAYGW discrepancy events, incorrect and incomplete obligation reporting (this may extend to GST obligations), non-lodgement, employer obligations and mistakes as a result of business structures.

    Small businesses owe $15 billion in collectable debt, which accounts for almost two thirds of all debts owed. Importantly, the vast bulk of this debt is client initiated and acknowledged, not arising from ATO review activity. Obviously this is a big number and one of our key focuses is implementing strategies to help small businesses avoid getting into debt in the first place.

    Acknowledging the diversity of small businesses and complexity they face, it’s the ATO’s job to make it easy for small business owners and operators to meet their obligations so that they can focus on making their business thrive. We aim to do this by:

    • transforming our digital services
    • providing help and support directly to them, and through their tax agents, as well as working with their industry associations, and
    • working to reduce complexity.

    We want to build greater trust and confidence in the way we administer the tax and superannuation systems, so that small businesses are willing to engage with us and see the value in meeting their tax and super obligations.

    You are our key partners in achieving this, and today I’ll talk about a range of key focus areas that will help you do your job of supporting small businesses.

    What’s new

    So what’s new? There are a range of tax changes coming up which impact on small business. Some things are contingent on the new government and Parliament recommencing. And I know you had a session on these things earlier today.

    I wanted to touch on what I see are the key changes impacting on small businesses as we approach 1 July as I think they are the most important for you to be aware of and guide your clients on.

    Single Touch Payroll

    Firstly, Single Touch Payroll. I know you had a session on it from Jacqui Tucker this morning so you should be well versed in what it means for you and your small business clients. We are cognisant of the impact for small employers transitioning to STP, I will touch on that.

    STP commenced on 1 July 2018 for employers with 20 or more employees as at 1 April 2018.

    Legislation is now in place to extend STP reporting to all employers from 1 July 2019.

    We know that reporting 26 or 52 times each year instead of once is hard to sell for small businesses at first but we are focused on the concept that it is integrated into natural business systems, that is when you pay your employees

    And we are already seeing great results of people moving to STP. We have over 100,000 employers now reporting which includes over 53,000 small employers. This equates to 6.7 million employees and that is growing by the day.

    We recognise it isn’t going to be easy for everyone, so to make STP as accessible as possible to all businesses, we ran an expression of interest with software providers to develop an STP enabled solution that is simple to easy to use for micro employers with no cost low cost solution under $10/month per month. These solutions can be found on our website.

    Most STP-enabled solutions are now ready to use.

    We are also taking a flexible approach:

    • If employers start reporting between 1 July – 30 September they’ll be reporting on time
    • No penalties will be applied for missed or late STP reporting in the first year
    • No penalties will be applied to any small employer that makes a genuine attempt to switch to STP reporting or put in place arrangements for the first year
    • We will grant deferrals to any small employer who needs more time to start STP reporting
    • We have streamlined the process for registered agents providing an STP service for their clients.
      • If a registered agent reports through STP for an employer, they can obtain written authorisation to make this declaration through an annual agreement.
      • This written agreement is called an STP engagement authority and will evidence a registered agent’s authorisation to prepare STP pay events on behalf of an employer.

    We are also implementing some concessions:

    • For the first two years, we will allow micro employers (those with 1-4 employees) the option to lodge their STP report quarterly through their registered tax or BAS agent at the same time as they lodge their BAS
    • Closely held payees will be exempt from reporting for the 2019–20 year.

    To develop flexible transition options for small employers, we have taken a flexible, pragmatic approach.

    • The option of using a simple, low cost or no cost, alternative reporting solution.
    • We will consider providing exemptions to STP reporting for employers experiencing hardship, or in areas with intermittent or no internet connection

    When we are thinking about how to support small employers, we like to think about them into three groups:

    • The start reporting now group
    • The I need more time group
    • The quarterly reporting group.

    Splitting them like this helps work out what support they will need.

    The start reporting now group:

    • already use a payroll solution which is STP ready or could upgrade fairly easily
    • or, are comfortable with ‘digital’ and see the benefit
    • or, are new to business and want to start out on the right foot.

    The I need more time group:

    • may be willing to use digital reporting in their business, but want to see some results before moving
    • may be a timing/mind-space issue within their business
    • may have little or no digital capability and will need help in taking the next step.
    • This is the group we would encourage to apply for a deferral – which you can help them with if needed. But they should be focused on taking up STP by early 2020.

    The quarterly reporting group:

    • are micro employers who have little or no digital capability and will rely on a their agent to provide a reporting solution in the medium term
    • or are micro employers who only taken on employees intermittently, like . shearers or for odd jobs).
    • Eventually closely-held businesses will also be part of this group - when their exempt status expires at the end of Year 1.
    • This group will need the most help from you.

    We want to ensure small businesses know there are help and options available to assist them to transition, and we need your help to communicate that. So if you can take away today the options I have outlined and share with your clients based on their circumstances that would be a great outcome.

    Instant Asset Write-Off

    Recent changes to the instant asset write-off impact on what small business are able to claim and we want to make sure they and all of you are clear on the rules so they can claim what they are entitled to.

    The measure also applies to businesses with turnover between $10 million and $50 million during that time.

    I recognise these changes create a complex situation for making claims and we have helpful examples on the website. 

    Taxable Payments Reporting System

    The last change I want to talk through is Taxable Payments Reporting System (TPRS).

    TPRS and the related Taxable payments annual report (TPAR) allows us to collect information about payments that are made to contractors for providing services. It strengthens the ATO’s ability to detect and deal with those not reporting or under-reporting their income.

    The information a business needs to report on the TPAR is generally available on the invoices they receive for payment.

    It has operated in the building and construction industry since 2012 and prevented $2.7 billion from being lost to the black economy in the building and construction industry in the 2015–16 financial year.

    As part of our increased focus on tackling the black economy it has been expanded to several other identified high risk industries.

    It was expanded to the courier and cleaning industries from 1 July 2018, with the first annual report due by 28 August this year. There are approximately 23,000 businesses in these industries reporting on 82,000 contractors. Their first annual report is due by 28 August 2019.

    A business may need to lodge a Taxable payments annual report even if cleaning or courier services are only part of the services they provide. These changes aren’t just focused on the cleaning and courier industries, they apply to any businesses in any industry providing these services.

    TPRS will commence in the IT, road freight, security and investigative services industries on 1 July this year, with the first annual report due by 28 August 2020. There are approximately 53,000 businesses in these industries reporting on 164,000 contractors.

    In consultation with all affected industries, tailored guidance products have been developed such as law companion rulings to help businesses understand if they have an obligation to report under the TPRS.

    Feedback from industry and professional bodies suggested that we would provide a better experience if we have the exemptions within the respective law brought together into one Legislative Instrument; covering the exemptions for all the new industries.

    The Legislative Instrument was released for public consultation and we did not receive any feedback from the community.

    Making sure you can assist your clients in those industries to understand if they need to report will be very beneficial to them.

    The tax gap program and what it is telling us

    If we move away from changes and on to what issues the ATO will be considering in the coming year, one of my biggest focuses will be progressing our analysis of the small business income tax gap and what the gap shows us about small business taxpayers.

    Over the last few years we have been working to calculate the small business income tax gap. The tax gap is the difference between the income tax collected from small business taxpayers and what we estimate would have been collected if every taxpayer was fully compliant.

    We have a large program of measuring tax gaps at the ATO. We measure tax gaps because the outcomes:

    • Inform policy considerations
    • Identify or evidence priority risks and strategies
    • Promote an honest conversation around behaviours and the performance of the tax system.

    The reliability and credibility of the estimates are informed by advice from an Independent Expert Panel.

    A Random Enquiry Program is used to inform the small business income tax gap estimate. We audit a random sample of small business entities with income tax obligations. The randomly selected entities could be companies or individuals in business.

    To calculate the tax gap estimate, the results of these audits are combined with estimates of the impact of people outside the system, unreported wages, and data around the amount of debt that is not expected to be paid.

    To ensure the randomly selected entities have reported correctly, we also review the tax affairs of any associated entities (including those without income tax obligations).

    Work is progressing to finalise the small business income tax gap and we will release it once it is credible, reliable and meaningful. However, we can draw insights from the program even when the gap is still under development.

    So while we won’t be releasing the gap figure just yet, we are ready to share the insights we have gathered so we can start addressing the issues we see.

    Indications are that the small business income tax gap is much larger in percentage terms than in other market segments at between 10% and 15%. While we don’t have the final figures, to give an idea, we are expecting the small business income tax gap to be in the order of $10 billion.

    We have anticipated that the gap will be slightly higher than the individuals market because there are fewer automated checks available for the small business population. But insights show we need to tackle some of the behaviours we are seeing.

    We are finding that the small business population can be broken into three groups:

    • Those inside the system
    • Those outside the system
    • Those inside the system some of the time.

    The estimated size of the gap and the insights from our Random Enquiry Program demonstrate that there are issues that need attention in the small business market. If we don’t take a stronger approach to supporting small business and identify non-compliance, the health of the system is at risk.

    Although our small business population is very diverse, the program has highlighted some common risks and behaviours that we need to focus on to better support small businesses to get it right.

    Because we see that most small businesses engage a tax professional or some or all of their obligations you are essential to our strategy to address these risks and behaviours. Together we are custodians of the system.

    So we will use the insights to work with the tax profession, industry and small businesses to avoid unnecessary errors and get clients’ tax right up front.

    We want to be open about what we have learnt through this work so that tax professionals can learn from it as well. It will help you work out what you need to focus on in your advice to clients

    The program provides us a unique opportunity, because as a risk-based organisation we see the world through risks, through people not doing the right thing. The random enquiry program allows us to see examples of when small businesses are getting it right, and to see what good looks like. This has given us a very different perspective.

    Understanding what behaviours make a well-operating business is very useful for both our staff and the tax profession because it will allow us all to better guide people towards managing their small business in that way. We also want to share that information with the community.

    When we see businesses operating well, they get the basics right. They keep good records and have effective reconciliation methods in place. They run their business with the help of technology, like point of sale software and accounting systems, and they seek advice from a tax professional when they need it.

    They also are likely to:

    • take time to understand their tax and super obligations and keep on top of any changes that affect them
    • use a cash flow projection or budget tool – like working with a tax professional to use our Cash Flow Coaching Kit
    • declare all of their income, including cash income, in their income tax return
    • apportion their expenses between private and business use
    • make sure their details are up-to-date, such as their ABN details, contact details and bank information.

    Our insights also suggest that when small businesses have regular contact with a tax professional, they’re more likely to be reporting correctly. This is such an important demonstration of how we rely on you to maintain the health of the system.

    It shows that if your business model for small businesses goes beyond assisting with lodgments you can provide significant value add to their business health. You are very much part of our solution in working to reduce the tax gap.

    Along with showing us what a well-functioning business looks like, the tax gap program has identified some common issues.

    As you know, individuals who are not in business have the vast majority of their tax obligations taken out through withholding. The relative lack of tax withholding and third party reporting that apply in practice to small business compared with individuals result in increased opportunities for errors to go undetected and for some taxpayers to deliberately under-report their taxable income.

    I recall seeing someone say when they moved from being an employee to running their own business that they thought the ‘tax fairies’ would do their tax as they had before.

    The key behaviours we’re seeing that are contributing to the tax gap include:

    • Omitting income – here we’re seeing behaviours like business owners depositing income into private accounts or mortgages, or not declaring cash sales.
    • Failing to accounting for private use of business assets or funds, for example claiming an excessive business portion for something they use both personally and for business – or not recording director’s fees or drawings correctly.
    • Claiming private expenses as a business expense or not having the necessary records to substantiate business expenses.

    Something we’re also seeing a lot of is business owners making mistakes because they don’t understand their tax obligations.

    This often arises when there is a change in business structure and the business owner doesn’t understand the changes they need to make to comply with their obligations under the new structure. Or sometimes a one-off or unusual event such as a capital gain can add a level of complexity.

    We understand that small businesses are busy; we certainly know that tax is not their first priority. They have a lot on their plate and of course the occasional mistake will be made, whether it’s a late lodgment, an overdue payment, or income that’s mistakenly omitted.

    For people who make mistakes, we want to provide support and guidance and identify areas where we can reduce complexity in the system including pre-fill or other options. We also want small businesses to feel comfortable to approach us if they realise they have made a mistake, because we want to support them to work through that and get on top on things.

    What we’re seeing so far from the Random Enquiry Program is that many businesses are reporting correctly and trying to get everything right.

    In the middle, we have about a quarter of taxpayers who are either:

    • making simple errors
    • making mistakes because they don’t understanding their tax obligations
    • reporting incorrectly as they haven’t put adequate business controls like record keeping and reconciliation processes in place.

    At the other end of the scale, there is a small percentage of taxpayers where we have evidence pointing to involvement in black economy activities. These cases have the biggest impact, accounting for around 60% of the gap.

    We see a range of behaviours that indicate participation in the black economy, like not declaring cash sales, funds being redirected to private accounts, private expenses being claimed as a business expenses, income from weekend sales not being reported, and not meeting obligations as an employer, like paying super.

    With an estimated cost of $50 billion to the country, the black economy has a huge impact on small business and the community as it creates an unfair environment and threatens the survival of those businesses that do the right thing.

    People are deliberately doing the wrong thing and it is adding up to a lot, with a significant impact on the tax gap and the Australian community.

    Not paying your tax is effectively stealing from the whole community, it’s not fair and it’s not okay.

    Acknowledging the significance of the issue, the Government has provided us with additional funding for a black economy program. In last year’s Federal Budget the ATO was provided with funding to undertake and implement a number of initiatives over four years from 1 July 2018.

    You will see an increased focus in this area through strategies focused on improving detection techniques to deliver tailored corrective, preventative and educational activities. It will become much harder to operate outside the system, or to report income below what someone’s lifestyle suggests. Our work in this space has direct links to reducing the tax gap and insights from the tax gap work back up the need for us to have a heavy focus on this behaviour.

    There are a range of measures which are part of our black economy program.

    Removing the deductibility of non-compliant payments measure received Royal Assent in late November 2018 and applies to payments made to workers on or after 1 July 2019. Under this measure, businesses will no longer be able to claim deductions for payments to their workers such as wages where they have not withheld any amount of PAYG from these payments (if the PAYG withholding requirements apply), or where they have not reported the PAYG withheld amounts to us.

    Government has proposed to:

    • introduce a condition for ABN holders with an income tax return obligation to lodge their income tax return and strengthen the Registrar’s ABN cancellation powers, commencing from 1 July 2021
    • introduce a condition for ABN holders to confirm the accuracy of their ABR details annually, this will start from 1 July 2022.

    But law change is required.

    We have established a mobile strike approach which provides help and education to assist businesses with their obligations as well as identify businesses who may not be complying with their tax obligations. As part of this work, we will be visiting up to 10,000 businesses around Australia, each year, for the next 3 to 4 years.

    Mobile strike teams have visited 22 locations and over 7,700 small businesses in metropolitan, regional and remote areas so far this year. The visits have been supported by 26 town hall information and 14 record-keeping sessions (including sessions in Mandarin for culturally and linguistically diverse taxpayers).The teams are visiting a further 8 locations and engaging with approximately 1,800 further small businesses in May and June 2019. These visits have also resulted in around 1,300 further compliance interactions on those businesses.

    We are also visiting tax practitioners who have clients that have been identified as being at risk of participating in the black economy. Support and guidance is being delivered to those practitioners.

    Around 1,800 Tax and BAS agents with outstanding income tax or activity statements have been identified and differentiated treatment strategies are being deployed to re-engage or address behaviours and non-lodgment.

    The ATO will introduce a new black economy hotline on 1 July 2019. If people are offered discounts for cash, the public will be able to refer them to the ATO. We want people to contact us and tell us about instances where people might not be doing the right thing.

    We are increasing our use of data & analytics to better identify and target black economy behaviours, like unexplained wealth, and other high risk characteristics that we will use to review people’s affairs and take the appropriate action.

    Our strategy isn’t just about firmer action because we recognise that people sometimes just don’t understand their obligations, so we have a range of education topics available and are also currently tailoring products to build business management, financial, digital and tax and superannuation acumen.

    Three fundamental themes underpin our work in response to the black economy: Educate, Engage and Enforce.

    Adopting this approach, we are focused on ensuring obligations are understood, that clients have an opportunity to engage and make voluntary disclosures if they have not been doing the right thing, and then follow enforcement activity.

    While I said before that businesses who regularly engaged a tax professional tend to be operating well, I also need to acknowledge that not every business who uses a tax professional is getting it right. Sometimes this might be unintentional on the part of both parties, but sometimes it is intentional under reporting or over-claiming.

    We understand that tax practitioners rely on the information their clients provide, but we do expect that you’ll do some basic checking and ask questions to ensure your clients have included everything that they need to. If it doesn’t sound right, ask again.

    We are committed to creating a level playing field for businesses and the tax gap estimate demonstrates the significant impact this behaviour has on the tax system.

    Where we identify that a business engages in non-competitive behaviour and dishonest business practices, we will take firmer action to ensure it meets its tax and superannuation obligations. We do hold those deliberately avoiding tax to account and use the full extent of our powers, including prosecution and application of penalties. We need to do that as the regulator of the system.

    But even when we take stronger action, we’ll work cooperatively with the small business owners or their representative to get things back on track where we can.

    How we are working to reduce the gap

    We’re already using insights from the tax gap program to inform out strategies to tackle the black economy.

    We audit small business owners who report minimal profit but seem to be maintaining a lifestyle far exceeding their personal income.

    We’re matching third party data to tax returns and making amendments where we see omissions.

    We also compare data across businesses within similar industries to identify unlikely or implausible deductions or where income is not being reported.

    But we are also using the insights to identify where honest businesses are going wrong so we can better target our communication and support tools to help them correctly meet their obligations.

    Getting the right amount of tax paid in the first place is the most efficient way to operate an income tax system from all perspectives, including the cost to the taxpayer.

    We’ve been getting messages to tax professionals and the small business community to help them avoid some of the common mistakes we’re seeing. Some of the topics we’ve been focussing on include:

    • setting up or changing to a company structure
    • claiming motor vehicle expenses
    • omitted income, and
    • correctly apportioning expenses to account for business and personal use.

    The role of the tax agent in supporting small business

    There is more we can do though and tax professionals are key to our efforts to reduce the small business income tax gap and tackle the black economy.

    We are committed to working closely with tax professionals and our other partners like business advisory groups and industry associations to set small businesses up with what they need to be successful.

    In the coming year I want to work even closer with our partners like you to encourage you to be a champion of small business and support their success. I want to tackle the issues we have identified which impact on small business meeting their tax and super obligations.

    We can communicate more about what small businesses need to do to get things right and tax professionals are a key part of offering better support to them.

    Like I said, where small businesses have regular contact with a tax professional they are usually reporting correctly and are healthier. We want to encourage that engagement.

    Working with you and your industry bodies to educate and support the small business community is a key part of our strategy.

    Tips for you and small businesses

    To ensure you have what you need to provide a well-rounded service to your clients we want to make sure we share insights and tips, as I have done today.

    Here are my top two tips for you to give your small business clients the best support:

    1. Understand their business, not just their tax. Use this as an opportunity to get to know your clients and their business better, then you can give more advice on their business as a whole, not just about meeting their tax obligations. If you know more about their business, the better positioned you will be to help them thrive.
    2. Stay up-to-date. We have a range of communication channels to help you keep up-to-date. Subscribe to our, tax professionals’ newsletter or follow us on social media to stay up-to-date. You can follow me on Twitter, @ATOSmallbizExec to get the latest small business info.

    You can also subscribe to our Small Business Newsroom and encourage your small business clients to do the same.

    Here are my top three tips for you to pass onto your small business clients:

    • Keep good records. Good records are a recipe for success in any business, and not just to ensure compliance with tax and superannuation affairs. Encouraging your clients to keep good records will help them stay on track.
    • Keep an eye on their competition. Once a small business has got their records in good shape, they can check out the ATO’s small business benchmarks to compare the performance of their business with their competitors. You can also have a chat with your small business clients about where they sit in comparison and any steps they can take to improve their performance.
    • Look after their mental health. We know running a small business can be stressful and can take a toll on mental health. The ATO offers a range of services aimed at helping businesses stay on track available on our website.

    How we support small business

    We’re committed to making it as easy as possible for all small business owners and operators to understand and meet their tax and super obligations, by offering a range of digital services as well as tailored education and information via multiple channels.

    From today, if there is one of our services I want you to share with your clients it's the Small Business Newsroom and email service which I just mentioned. It provides timely updates of key topics impacting on small business.

    As I mentioned before debt is a large issue for small businesses. We want them to know they can reach out when they are struggling to pay. If they are worried they won’t be able to lodge or pay on time, they shouldn’t be afraid to contact us for guidance.

    If they contact us, we will look at their situation and work together to find a solution.

    We can help them:

    • organise a payment plan
    • delay a lodgment or payment
    • request priority processing of their tax return refund.

    We have a range of services to make it easier for them to pay like:

    • enabling pre-payments of activity statement liabilities
    • issuing preventative SMS payment reminders
    • making ATO accounts available online
    • expanding our automated phone service that allows taxpayers to set up payment plans.

    The best thing we can do is help small businesses to not get into debt in the first place and initiatives like our Cash Flow Coaching Kit, which is delivered through partners and educates on managing cash flow, are focused on addressing the issue.

    Support for small businesses in dispute

    We also recognise that small business should be entitled to an independent review of decisions we make that impact on them.

    These reviews are carried out by the ATO’s Review and Dispute Resolution area which is a separate and independent area within the ATO and reports to a different Second Commissioner. It ensures the review is independent and decisions are not being reviewed by the same person.

    We are also ensuring that small businesses have the same options as big business so last year we piloted Independent Review for small businesses, which assists eligible small businesses whether they self-represent or have an advisor. As part of our small business income tax audit case finalisation process, eligible small businesses are offered an independent review of their audit case before assessments giving effect to the audit are issued.

    The pilot was initially limited strictly to Victoria and South Australia, but expanded in October 2018 to cover all states and territories.

    We also advocated for the establishment of the Small Business Taxation Division in the Administrative Appeals Tribunal which started operating in March 2019. It features a lower application fee, a dedicated case manager, and decisions to be issued within 28 days of a hearing.

    In the new Division, the ATO:

    • will be represented by internal ATO officers (other than in exceptional cases)
    • these officers responsible for the matters in the AAT will be drawn from the independent Review and Dispute Resolution business line
    • will not commence recovery proceedings for any disputed debt related to the AAT proceedings, other than in exceptional circumstances.

    We continue to support the Tax Clinic Pilot Program. In November 2018 funding was announced for the pilot. One million dollars was allocated to set up tax clinics at 10 universities across Australia. The clinics provide general taxation advice to unrepresented individual and small business taxpayers, to help them with their tax obligations and reporting requirements.

    We have also introduced or enhanced a range of services aimed at earlier and fair resolution of disputes for small business, including In-house Facilitation, Dispute Assist, ATO Test Case Litigation and Fast Intensive Triage.

    Closing remarks

    You are likely aware that the way we interact with small businesses has been the subject of public scrutiny in the last 12–18 months, with a number of media reports calling our treatment of small businesses into question. These reports have had negative impacts on the community’s trust and confidence in our ability to administer the system fairly.

    But we acknowledge there are always ways to improve and we are focused on how we can continue to make our processes and interactions better.

    Over the last year we have been thinking about our administration of small business tax, our processes and approach to our interactions. We are seeking to identify and address any problems in our processes. 

    We are focused on reviewing our processes and procedures where there may be high client impact and better understanding our case streams end to end, from inception of a review or audit to conclusion of an objection and collection of debt. We want to be able to better connect part of the process and address potential pain points and ensure small businesses have a good experience with us.

    The early indication of the size of the small business income tax gap and the insights we have from it show that we do need to work hard to protect revenue and it is important that in certain situations we use our power to get people to comply. If we don’t, the gap will grow. We just want to ensure that we approach those situations in a way the gets a suitable outcome for all parties.

    From transforming our digital services, working to reduce complexity, and testing our internal processes to ensure we have the settings right on how we administer the system, we are taking action to improve the experience small businesses have with us so that they feel confident when dealing with us.

    You are custodians of the system just as much as we are and we are relying on you to improve the support and advice small businesses receive to help them get on track and stay on track. And we also need your help to tackle bad behaviour.

    If we work together on both these aspects, we will collectively continue to build trust and confidence in the way we administer the tax and superannuation systems.

    Last modified: 31 May 2019QC 59160