Jeremy Hirschhorn, Acting Commissioner of Taxation
Remarks delivered to the Council of Small Business Organisations Australia (COSBOA) National Business Summit
Tuesday 5 April 2022
(Check against delivery)
Introduction
Hello everyone, it’s good to be here attending a live event.
Small businesses are vital participants in the tax and super system. In the running of your businesses, you both collect and pay tax that funds critical services within the community. You remit tax on behalf of employees, and report tax data on behalf of others which contributes to ensuring the integrity of the system. As small business owners you can also set the tone among peers and competitors, and often even among customers, about how everyone should engage with the tax system based on your attitudes – and more importantly, your actions.
So today I wanted to touch on six themes which bring this to life:
- fostering mutual engagement and transparency
- ensuring tax incentives are easy to claim and receive
- re-engaging with the debt book
- giving you the tools to engage with us through a dispute
- maintaining a level playing field
- reducing complexity by leveraging natural systems
- getting the right balance across markets.
Fostering mutual engagement and transparency
After such an uncertain few years, the importance of mutual engagement and transparency is paramount. This is something you will see from us over this next period. It certainly is no 'one size fits all' approach – we know that parts of the economy are doing very well, but other parts are still struggling.
This approach to mutual engagement and transparency is at the macro level, for example our consultation through COSBOA and with the many people around the room who contribute to our formal consultation and stewardship groups, but also at the micro one to one level, keeping that same spirit of transparency and “no assumptions” at that individual taxpayer level. Even within an industry we know that experiences are so different.
We also recognise there are tension points in the system because the nature of law is that it can often be very binary in outcomes even though the real world is on a spectrum. A good example of this is the contractor versus employee distinction. In the real world they are often not that different at the margin, but in terms of consequences for all sorts of regulators, they produce really different outcomes. And so we are thinking about how, as a regulator, can we give practical certainty around some of those hard, vexed questions for people who are trying to do the right thing, by giving them certainty around those sort of issues.
Ensuring tax incentives are easy to claim and receive
We are focussed on ensuring the range of tax incentives coming through the tax system are as easy as possible and as certain as possible for small business to claim.
Whether that is measures to help boost cash flow, like the instant asset write-off or loss carry back, or reduced tax rates. And, of course, if the measures announced in the recent Budget are passed, we will also work to ensure we help people get those benefits with confidence.
Re-engaging with the debt book
Through the course of the pandemic, we deliberately pulled back from starting new audit activity, but also from actively engaging with our debt book. As we come out of the pandemic, we will be engaging with the debt book – and you are already starting to see that – but again with a spirit of engagement and transparency. What we would say in return is: if we reach out to you, please don’t ignore us, even if you are doing it tough. We have payment plans and there are various ways of dealing with us that take into account your individual circumstances, but we can’t do that if you don’t engage.
Giving you the tools to engage with us through a dispute
When people do unfortunately get into disputes with us, we are giving people the tools and information to engage with us through a dispute mechanism that is fit for purpose for the particular dispute. There are various ways to resolve disputes both with the ATO and through the court system.
In Australia – and we know it doesn’t always feel that way – small businesses actually have much more opportunity to engage in disputes with the revenue authority than they do in other countries and we are trying to improve that even more. And importantly, in Australia small businesses have access to a fully and structurally independent administrative review of their disputes, as well as funding to 'level the playing field' where the ATO has external representation.
Maintaining a level playing field
We want to make sure that honest small businesses aren’t out competed, or left holding the can of unpaid invoices, by phoenixers or other bad participants in the system. That will continue to be part of our approach coming out of the pandemic, to make sure an honest business is not disadvantaged, but advantaged, by the tax system.
Reducing complexity by leveraging natural systems
To use an analogy, nobody would say that a smartphone is a simple piece of technology, but it is simple to use. That’s the future of the tax system that we are looking for: how do we make the tax system – in partnership with our digital service providers – as easy as possible to interact with.
Underpinning all of our approaches is the philosophy around natural systems. How can we get data and information from natural systems, rather than asking people to extract data in many different ways and for different purposes? How do we build the tax system of the future around the natural systems in which small business operate?
So a theme that will play out over the next few years is not just the digitisation of business tax, but also a broader digitisation of how business deals with government.
We are already seeing it through initiatives such as eInvoicing. I would just point out here, that the ATO is helping catalyse that for government but we are not in the middle of eInvoicing – we do not get the invoices that come through eInvoicing, those are direct invoices. We don’t want those invoices. We trust businesses to tell us about their business operations, we don’t need to see every invoice. But we’re playing a really important role in the take-up of eInvoicing because we think it makes the economy better, we think it makes your businesses better and more successful: you can spend less time on billing and more time on your business.
You will see this shift to digital in the Business Registry system too. We’ve got the job to modernise that – with ASIC – to make a single registry system so that you don’t have to spend your time filling in multiple registers. It is a multi-year project but that’s our ambition.
Director IDExternal Link is another area which is aimed at a level playing field but also about how do we make the system better?
We recognise that sometimes these new initiatives seem like a burden while they are being introduced but we think there is a payoff in the long run. I think of these key initiatives as pillars in our future service offerings and for the economy more broadly. If I take Single Touch Payroll, for example, when we first introduced STP a few years ago no one would have thought it would underpin the largest ever salary subsidy scheme JobKeeper, which saw $89 billion in much-needed support flow through to the Australian community. Thank goodness we had it. Where employers used good software for their STP reporting, claiming JobKeeper was easy. Similarly, we were able to administer $36 billion in cash flow boost payments without businesses having to lodge even a single additional form.
So hopefully in introducing some of these key digital initiatives we are reducing immediate burdens but also giving ourselves so much more flexibility to introduce new measures in the future.
Getting the right balance across markets
We’ve got a really sophisticated way of understanding the market now, we call this tax gap or tax performance, where we actually measure performance of each of the markets. The Australian tax system is operating extremely really well, we estimate it operates at about 93% tax performance: 91% at lodgment and 93% after ATO intervention. That’s as good as anywhere in the world and in fact very few countries even dare to measure this, let alone are confident enough to publish it. It’s very easy to say we raised $15 billion in liabilities and really hard to say we are running at 93% which means we missed out on $35 billion of tax which was not paid. It is this tax performance work that helps us understand the different markets and where we should focus our efforts.
For example, large business performance is about 92% at lodgment and 96% after compliance activity. In one sense the large market is easier for us as an administrator as there are fewer of them, the top 1,000 big businesses pay about two thirds of corporate tax in Australia. The tax performance of small business is not as good, it’s at about 87%. Again, that’s good on a global scale but we would like it to be better.
So this measurement goes beyond the level of coverage but also how you interact with the system.
We know with large business it’s not about tax evasion, it’s around aggressive tax planning which tips over the edge into transfer mis-pricing or tax avoidance.
For small businesses we also know more about the major drivers of compliance behaviour. There is an element of shadow economy and we are trying to do our best to create a level playing field to address some of that. We do know a large part of it is that the tax system is complex and we are asking people to effectively calculate their own utility bill. With this insight, we know that the solution is not to throw thousands more auditors at the problem (which looks very effective on traditional metrics). Our solution is to make the system easier and help people to avoid mistakes.
Conclusion
Small businesses should be confident that under the ‘client experience’ concept introduced by Commissioner Jordan and designing for the majority, our people on the coalface really understand what they’re there for. Now audits will always be a critical part of the system, but our people really understand how ensuring the right client experience drives sustained willing participation in the system, rather than just to getting us to the next audit. And we have some very strong advocates – like Deborah Jenkins, Peter Holt, Andrew Watson and Michael Morton in the room today – who are passionate about engaging with small businesses and trying to understand what’s going on.
In conclusion, if I could give all small businesses operating in Australia some advice on how to interact with the ATO as a regulator it would be:
- maintain engagement with us
- lodge on time, but if you can’t, talk to us
- pay on time, but if you can’t, talk to us
- if your business is struggling, don’t just ignore it, get advice
- get on the right software for your business, it will make your life and interactions with us easier, but more importantly will lead to your business being more successful
- get good advice from a registered tax professional.
Thank you again for the invitation to speak with you today, and happy to take any questions.
Remarks delivered to the Council of Small Business Organisations Australia (COSBOA) National Business Summit by Acting Commissioner of Taxation, Jeremy Hirschhorn on 5 April 2022.