GST Stewardship Group key messages 13 March 2024

Improve small business tax performance

The Australian Taxation Office (ATO) spoke about insights it had gained from the Improve small business tax performance pilots, including specific GST pilots, run in late 2023 and early 2024.

The pilots included:

• Right time GST payments – testing whether more frequent GST payments will assist small business operators to better manage cashflow and prevent new debt through using digital services to facilitate more regular GST payments.
• Monthly GST and pay as you go withholding (PAYGW) reporting – testing whether monthly GST and/or PAYGW reporting, rather than quarterly will assist some small businesses better provision for their GST and PAYGW obligations, improving their cashflow management and preventing new debt.
• Building confidence and certainty into natural systems – testing whether integrating ATO public advice and guidance into digital systems will support early detection of potential issues and errors. The pilot focuses on simple loans to private company shareholders and associates (Division 7A)
• Pay as you go instalments (PAYGI) – testing whether the use of natural systems to calculate PAYGI assists small businesses to better manage cash flow and prevent new debt.

Insights from the pilots included:

• Participants in the right time GST pilots using digital solutions focused less on their tax obligations and had more time to focus on running their businesses.
• There was a move to better payment behaviours and better on-time lodgment performance.
• Of the businesses in the monthly reporting pilot, 75% said they would continue lodging monthly after the pilot ended. The ATO said that more work needs to be undertaken to determine the overall benefits versus the costs.
• ATO systems are not yet fully enabled to accept tax prepayments with some inconsistencies detected during the pilots.
• There were good levels of cooperation from digital service providers, with the ATO recognising that a clear commercial value is required for them to be involved.
• There is a lot of diversity in the small business population and a one-size-fits-all approach will not work.
• The digital first 2030 vision for small business will require significant change and ongoing investment, with further exploration work required to build a strong evidence case for change which considers the system, policy and process changes required.
• There are broad similarities between making tax just happen, and what the smart economy and GST digital strategy are trying to achieve.

Member comments

• Members said it is commendable for the ATO to reward good behaviour, but it needs to continually ask, ‘what’s in this for businesses?’
• The involvement of digital service providers at the early stages of this initiative is very good for the project’s future.
• Members said this project provided an opportunity to think beyond the normal framework about options that might improve both small business tax performance and their client experience.

University of NSW tax and business advisory clinic

Information about tax issues faced by micro and small business clients of the University of NSW tax and business advisory clinic was presented.

A few case studies were presented where clients had faced significant and often longstanding tax compliance challenges due to issues, like business problems and family breakdown. Tax issues involved included large tax debts and non-lodgment of business activity statements, as well as poor record-keeping, tax knowledge and understanding of their tax obligations, including the GST-free threshold.

General observations were:

• managing cash flow, meeting lodgment deadlines and working through ATO systems to lodge business activity statements quarterly can be a real problem for small businesses
• several of the clinics’ clients have poor knowledge around
  • claiming GST and input tax credits
  • separating business and personal use
  • what businesses can claim and how to do it
• some employers require people to have Australian business numbers (ABNs), otherwise they won’t deal with them.

Members praised the ATO for launching Essentials to strengthen your small businessOpens in a new window in February 2024; an online learning platform that helps small business owners master their tax and super obligations.

The ATO advised that it is currently working on additional modules covering GST that are expected to be available soon.

We constantly look at how and when to provide educational messaging for small business, including consideration of the appropriate communication channels, and whether to use influencers for messaging.

Member comments

• The ATO could humanise the audit experience by releasing videos to help people understand what the ATO does through its investigation/audit work and recovery process.
• The ATO could provide practical advice for small businesses, setting out timeframes and taking them through the process. They could also provide advice on what to do if they are thinking of closing their business.
• There was general discussion about the $75,000 GST-free threshold and choices that businesses may make in relation to that.

GST insights into the NFP and government sectors

The ATO provided insights about the not-for-profit (NFP) and government sectors, including:

• The significant contributions they make to the GST system.
• Around 26% of Australia’s workforce are employed in the NFP and government sectors.
• Around 66,000 NFPs and 9,700 government entities are registered for GST
• The ATO’s NFP centre is focused on gaining a better understanding of NFP interactions with the GST system, their preferences and priorities, as well as known areas of GST risk, both domestically and internationally, to better position and tailor the ATO’s services and guidance to help these clients meet their GST obligations.
• The ATO took members through some of the outcomes of recent research commissioned into the GST preferences and priorities of NFP and government entities. The findings verified key characteristics, behaviours and challenges faced by these sectors and identified recommendations for improvement.
• These findings will be incorporated into the NFP centre’s GST risk focus to better equip NFP and government entities to meet their GST obligations.

The ATO will use the research to update and improve public advice and guidance.

Members were advised that there are plans to resurrect the Government Entities Working Group.

Member comments

• More guidance and examples would be helpful, with the ATO noting that it will use information provided by the community to ascertain what else needs to be updated.
• Risk models that are being developed by the ATO may overlook some of the limitations of off-the-shelf accounting software products used by many smaller NFPs.
• The ATO provides limited tax-related information to help volunteers running clubs, many of which receive state government grants.

Forward work plan; Legislation and ATO updates

Members said they would like to undertake further discussion on fraud, noting that it is a big issue for the GST system. They would like to focus on risk, systems, analysis, triaging and consequences, including the sharing of information with the community and other commercial entities. Compromised identities can also be used to defraud the ATO.

Another broad topic area raised for future discussion focused on:

• GST in the digital age
• the sharing economy reporting regime
• how European countries’ experience using invoicing mandates can feed into future operational designs of our tax systems.

Members were provided with an opportunity to ask questions on updates which included:

• legislation and consultation
• news and program updates
• GST discussions at other ATO stewardship groups
• GST public advice and guidance
• GST litigation.

Australian National Audit Office

The recommendations of the Australian Taxation Office's Management and Oversight of Fraud Control Arrangements for the Good and Service Tax reportOpens in a new window released on 12 February 2024, was discussed. The ATO agreed to all 5 ANAO recommendations, which aim to strengthen assurance and improve responses to fraud events.

The Australian National Audit Office (ANAO) recommendations and ATO status:

• Prioritising the finalisation of existing work on the roles and responsibilities for fraud prevention, detection and treatment, including redesigning the external fraud conformance process and making necessary changes to relevant Chief Executive Instructions.

The ATO advised that this is being done.

• Documenting assessments of GST fraud risks regularly.

The ATO advised it is well-progressed on this.

• Ensuring the ATO’s fraud and corruption control plans are based on identified fraud risks that are documented in risk assessments.

The ATO confirmed it is well-advanced on this recommendation.

• Developing a response for large-scale fraud events encompassing relevant elements as identified in the ANAO report.

The ATO has already implemented a response for large-scale fraud events.

• The consideration of benchmarks for ATO fraud indicators, and the removal of the ‘Attorney-General’s Department fraud benchmark’.

The ATO is consulting with other tax administrations on their measurement and benchmarks for fraudulent activity.

The ATO said it is continuing to improve its management and oversight of fraud control arrangements, including those areas that are the subject of ANAO recommendations.

Members were taken through the ongoing development of GST analytical risk models which are a key lever in our ability to defend the GST system from fraud.

The ATO is now implementing phase 2 of the Contemporising GST Risk Models project, which is increasing its capability to effectively manage GST compliance risks across multiple client experiences.

Member comments

• A suggestion was raised that an area in which improvements could be made would be to make it mandatory to use pre-lodge messaging in all channels, including the wholesale channel. The ATO will explore that possibility.
• Would it be possible for the ATO to delay the payment of a refund while verification checks are conducted, noting that digitalisation has made it easier for people to commit fraud.

Community and industry insights round table

Members spoke about difficulties that some tax agents are experiencing in contacting the ATO on behalf of clients seeking payment arrangements. This included that clients who contact the ATO directly are receiving better outcomes than they are when they seek an arrangement on a client’s behalf.

Members also raised the continuing issue faced by large law firms by which they are unable to submit GST requests online and need to send the request to the ATO via a fax machine or mail.

Attendees

Attendees list

Organisation	Member
ATO	Hector Thompson (Co-chair), International, Support and Programs
ATO	Andrea Wood, International, Support and Programs
ATO	Rajitha Srikhanta, Office of the Chief Tax Counsel
ATO	Rowan Fox, International, Support and Programs
Australian Banking Association	Chris Plakias
Australian Bookkeepers Association	Kerrie Jarius
Chartered Accountants Australia and New Zealand	Kevin O’Rourke
Corporate Tax Association	Stephanie Caredes
CPA Australia	Ken Fehily
Digital Service Providers Australia New Zealand	Matthew Prouse
Independent member	Jennee Chan
Law Council of Australia	Rhys Guild
Property Council of Australia	Elke Bremner
RSM Australia	Sam Mohammad
Small Business Representative	Amanda Gascoigne (Co-chair)
The Tax Institute	Bastian Gasser
University of New South Wales	Prof. Michael Walpole
Wesfarmers Limited	Caryn Bovell

Guest attendees

Guest attendees list

Organisation	Attendee
ATO	Carl Mitchell, International, Support and Programs
ATO	Dora Jain, Small Business
ATO	Emma Tobias, Small Business
ATO	Jennifer Moltisanti, Small Business
ATO	Jenny Lin, Private Wealth
ATO	Kelly Norwood, Individuals and Intermediaries
ATO	Melissa Spurge, Office of the Chief Tax Counsel
ATO	Michael Morton, Small Business
ATO	Rob Heferen, Commissioner of Taxation
Department of Treasury and Finance, Northern Territory	Shaun Pearson
Treasury	Jane Cheung
Treasury	Victoria Henry

Apologies

Apologies list

Organisation	Member
ATO	Kath Anderson, Individuals and Intermediaries
ATO	Will Day, Small Business
Treasury	Emma Baudinette