ATO tax debt up 78% in five years

The ATO debt book has ballooned over the past five years, with small business debt accounting for more than 12% of total taxes owed.

14 April 2022 

Scott Treatt, general manager of tax policy and advocacy at the Tax Institute, said extra funds for the ATO’s Tax Avoidance Taskforce in the recent budget failed to address the ballooning debt book.

“Temporary measures don’t fix permanent problems,” Mr Treatt said. “We’re not talking about debts which have the cloud of a dispute hanging over them. It’s undisputed tax debts. And that book has raised from $19.2 billion five years ago, up to $34.1 billion now.”

This equates to a rise of 78%. 

The Tax Avoidance Taskforce was set up in 2016 with the goal of targeting multinationals, large public and private groups, trusts and high-wealth individuals, as well as the intermediaries who promote tax avoidance schemes.

It focuses on the top 1,000 public and multinational businesses as well as the top 500 privately owned groups.

Mr Treatt said the taskforce was reaping rewards with $15.9 billion collected over five years, and it had made significant progress when it came to large businesses.

“It’s been a popular area to hit because multinationals have issues internationally, not just here in Australia,” he said.

“If you look at the tax gaps across the board now, the large market is actually one of the smallest tax gaps. It is sitting down now around 4.3% – as a net gap – which is down from 6.2%.

“It’s bringing in the cash.”

But the gap was much larger in other sectors, with the figure of 6.9% for high-net-worth individuals and medium businesses. And small business debt was the number that stood out.

“Probably your largest is now in the small business market, $12.5 billion, or 12.7%. It is quite significant,” he said.

It was one of the reasons behind the recent huge mail-out to 50,000 directors warning that time was running out to tackle their company liabilities when it comes to the SGC, PAYG and so on.

But it did not address the gap in income tax, which was by far the biggest part of the problem.

He said while the ATO needed to chase debt, it was “not in the business of putting people out to business”.

“On the whole they are reasonable to deal with. And I think one of the biggest pieces is communication and communicate, communicate,” he said.

And Mr Treatt said the “funding cliffs” introduced by multiple budget extensions for the Tax Avoidance Taskforce meant problems for the office.

Since the original funding provision in 2016, it has been extended once with an additional $1 billion to 2023, then again in the recent budget with an additional $652.6 million taking it through to 2026.

The latest extension was estimated to increase receipts by $2.1 billion, and increase payments by $652.6 million over the forward estimates period. 

“But if I look at it from a policy perspective, it is temporary and provides an administration challenge,” he said.

“Now we’re seeing another extension. Yes, that’s all good and well, but that leads to them having contractors as opposed to full-time staff that can be brought in and trained up and given the skillset to really have an enduring life at the ATO – and hopefully help with the administration of our system.

“There should be a greater level of permanent funding for the ATO for a lot of its resources to achieve compliance.

“I think there’s a lot of need to really bring in the resources for the ATO on the advice and guidance side of their activities.” 

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