Our strategies and approaches
Findings from the small business random enquiry program continue to support the application of differentiated approaches to:
- help small businesses meet their obligations and
- ensure fairness in the tax and super systems.
Our 5 year view includes highlights and action we've taken to improve small business tax performance between 2018 and 2022, the year of our most recent tax gap estimate.
During this period, the government entrusted us to deliver stimulus support to Australians through JobKeeper, cash flow boost and early release of super. We also supported the community through COVID-19 lockdowns and natural disasters by giving taxpayers more time to lodge and pay. Throughout this time, we shifted our workforce and systems to rapidly respond to community needs.
The challenges we encountered included maintaining support and assistance to the community, while normalising client engagement activities as states and territories implemented roadmaps out of lockdown and economies moved towards recovery.
Supporting the community was a key focus, but we also needed to protect the integrity of the Australian revenue system against those who sought to take advantage of the disruption.
Resources were invested to safeguard against attempts to fraudulently access stimulus payments, and to deal with a large-scale GST fraud event that was promoted on social media (see Operation Protego).
Following the pandemic response, we regrouped and reinvested in our business-as-usual activities and approaches to improve small business tax performance.
Small business taxpayers doing the right thing
The small business random enquiry program has shown that most small business taxpayers try to do the right thing, but many struggle to meet their tax obligations. Our approaches to address this have been evolving with advances in technology, and as we learn more about the behaviours and needs of small business taxpayers.
Providing education and support to small businesses and their trusted advisors is an ongoing focus area. While our ability to attend face-to-face community events was limited during COVID-19, we continued to host webinars on a range of topics that we observed created confusion for small businesses, including:
- recording business income and expenses
- using your business money and assets
- claiming small business deductions
- introduction to business records.
During this period, these webinars became online courses, which culminated in the 2024 release of the Essentials to strengthen your small businessExternal Link online learning resource.
We also developed a range of tools and services to support small businesses to help small business understand and meet their obligations.
In 2021 we launched Online Services for Business, making it easier for businesses to interact with us and providing a secure channel to manage their tax and super obligations.
We are committed to delivering a future-focused digital tax experience and have tested initiatives with small businesses to understand how we can create a more supportive system. Insights from participants have revealed:
- Implementing software and digital tools helped to minimise errors and reduced time spent on manual processes. This allowed business owners to concentrate on their core business.
- Adopting shorter reporting cycles (from quarterly to monthly) aligned with natural business processes. This improved their cashflow visibility and ensured timely payment of tax, minimising debt issues.
- Early engagement with the right tax professionals and establishment of digital solutions integrated with their financial institutions streamlined reporting processes.
Taxpayers avoiding their obligations
A major focus continues to be the Shadow Economy Program. Shadow economy behaviour is responsible for the 59% of the gross small business income tax gap.
While they are in the minority, we have a continued and concentrated focus on those businesses that actively avoid paying the right amount of tax.
Some of the initiatives we were working on to address this behaviour between 2018 and 2022 included:
- Firm compliance action to address a range of shadow economy activities (including but not limited to omitted income, sales suppression, unexplained wealth, sham contracting, activities targeting high risk industries or behaviours). Some of these activities were restricted during COVID-19.
- Better use of data and analytics (for example, improving our risk models and acquiring data from new sources such as sharing economy platforms and the expansion of services required to report under the Taxable Payments Reporting System).
- Prevention and education strategies targeting future taxpayers (through schools, youth programs and migrant communities).
- The launch of the Tax Integrity Centre.
- The implementation of a range of new measures designed to minimise opportunities for dishonest businesses practices, including:
- statement of tax record requirements for government tenders over $4 million
- director ID
- removing the tax deductibility of non-compliant payments.
The government recently extended the existing ATO Shadow Economy Compliance Program through to 30 June 2028.