As COVID-19 relief dwindles, the ATO looms over small businesses

Mar 23, 2021 | Forensic Accounting

The COVID-19 crisis has hit everyone hard, but its effects aren’t just upon the health of the community. The financial repercussions have been severe and they have been widespread. Both individuals and businesses have been hit hard. And this has prompted the government to soften its approach when it comes to tax debt collection.

The good news is the Australian Taxation Office (ATO) went a little easier on small businesses through the height of the pandemic and the slightly more forgiving tactics have allowed more businesses to scrape by through these extraordinary times. Here comes the “but”: that leeway may be about to end.

JobKeeper’s end means big changes for small businesses

Yes, JobKeeper – the business-saving wage-subsidy scheme introduced as part of the $130 billion economic stimulus package announced on 30 March 2020 – is about to come to an end. What this means is, in the Federal Government’s view, that financial help regarding the COVID-19 crisis is no longer warranted. Of course, this view has many people and small business owners quite worried.

Among those people is Australian Small Business and Family Enterprise Ombudsman Kate Carnell. She’s particularly concerned that the ATO, in the face of rising collectable debt – now at $34 billion – will return to its pre-pandemic enforcement practices.

“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,” Carnell says.

“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.”

Altering the ATO’s approach

Carnell has called for a range of reforms to address her concerns regarding the ATO’s treatment of small businesses. These are collected in the new report “A tax system that works for small business”.

Recommendations within the report include:

  • Waiving interest and penalties for a first offence
  • Restricting ATO review and audit to one year when a small business is using an accredited tax or BAS agent
  • Immediately ceasing debt recovery against a small business that’s seeking a review of its tax position, regardless of whether the dispute is before the Administrative Appeals Tribunal.

Carnell’s reasoning is that small businesses in dispute with the ATO must be given “a fair go”.

“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,” Carnell says, singling out debt collection as an area of focus. She notes that overly complicated tax laws exacerbate the issue.

The report makes several recommendations of seemingly small adjustments to the taxation system that could have significant positive effects for small business. These include:

  • 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
  • Income averaging measures that would help small businesses pay the right amount of tax both in good years and bad.

Small business, big burden

To underscore the importance of the report’s recommendations, Carnell notes that the tax compliance costs for small businesses average around $90 per $1000 turnover. This is some 225 times more than the proportional costs borne by big business.

“Under the current system, small businesses are the ATO’s unpaid tax collectors. 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,” she says.

“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.”

Whether the report’s findings will be heeded by the powers that be remains to be seen. However, it is at least good news that the Ombudsman is so aware of the issues and is making waves to promote the interests of small business at a time when so much of policy is directed at public health and stimulus directed at the individual.

The pandemic isn’t over, neither are small business challenges

It is fair to say the effects of the COVID-19 pandemic have hit small businesses particularly hard. Many operations have gone under, many others – willingly or not – have gone into mothballs.

In these economic times, it makes sense for everyone to stay abreast of the news regarding relief plans, policy changes and government shifts. Advocates like Ombudsman Carnell are doing what they can to look after the interests of small business owners, but she’s not the only one.

We at Corporate Lifeline have made it our business to help businesses like yours thrive. And, if you need help right now? Get in touch. We’re here.


Download our FREE guide to resolving your financial difficulties and return to normal, successful trading.


If you find yourself in a situation where you need financial advice for your business, let us help you.