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How many Aussie businesses are on the verge of collapse? 

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The amount of business tax debt that is overdue with the Australian Tax Office has skyrocketed by 14% in 12 months to $40 billion. This is a very worrying sign. A business which is struggling to keep afloat will try and delay their payments for as long as possible, hopefully to keep some liquidity and survive another day.  

Eventually however, many businesses can’t keep going like this and collapse. This blowout in overdue debt is a worrying sign of how many businesses in Australia are on the edge. The Government’s response to COVID has wrecked our economy and country and the full effects of lockdowns and restrictions are still to be fully felt. 

Transcript

Around. Thank you.

Okay. Senator Roberts.

Thank you chair, and thank you all for attending. Minister, When all the COVID protections, when are all the COVID protections ending for businesses? You know, for example, the Australian taxation office pause on debt collection activities, and what have you provided to ensure businesses are supported and not thrown to the wolves?

Well, Senator, to answer the second part of your question, types of measures that we outlined in the last couple of budgets, such as, the lost carryback arrangements, the small business loans programmes, they’re the types of support that have been embedded for businesses to help with the economic recovery coming out of COVID. In terms of the dates of when, in some cases already have occurred, or to occur in the future. Certain protections around solvency arrangements, or ATO debt recovery practises, coming to end. I’ll let agencies, where they can speak to any of the details of those. Probably not the right person for that though.

So Senator, there’s a range of support measures that have been provided. The minister referred to the loss. Carryback there’s also obviously the temporary full expensing measures that go to June 2023. They’re the support measures, stimulus measures that I’m aware of in the tax space. I will pass to the ATO who can talk about the administrative actions that they’ve been taking to support business. And I think some of your question or some of the aspects of that support in the space of insolvency or, you know, market front features is probably best put to markets group later this evening. But I don’t know if the ATO want to add anything on the administrative actions.

Yes, Senator. We have recommenced the very measured approach to debt collection. We are concerned that the longer businesses sort of stay out of engagement with us. The more problematic those collection of debts are. I mean, the fact of the matter is that our total collectible debt has, as at 31 December, 2021, has increased by nearly $5 billion. That is collectable debt which is largely, I understand undisputed debt. So they’ve put in a bad statement. They’ve said, they’ve earned this amount. They’ve withheld pay as you go, they’ve collected GST, and for one reason or not, they haven’t remitted amounts they’ve acknowledged they’re responsible for. We are instituting a process of contacting businesses individually to make sure they’re aware of the debt and trying to come to an acceptable payment arrangement at least. But it is something we just cannot ignore because of the debt stock has gone up about 14% from the same time last year, and it’s now around $40 billion. So we have to focus in as empathetic way as we can. But it’s something we just have to get on with without jumping out there too quickly. It’s very well known in the advisory community that we are doing this now. And in some cases they’re saying, well, you should because the longer we leave it the more likely some of these amounts just won’t be paid. But if our Chief Service Delivery Officer wants to add anything to that, I’ll pass over to Melinda Smith.

I thank you. Commissioner Melinda Smith. Chief Service Delivery Officer. I just echo the commissioner’s comments. Last year, we actually had over 8 million engagement activities that we put in place to help small business and individuals. And the growth tends to be in the small business debt to actually help them and assist them to understand what’s their liability and how do we help them to actually get back on their feet. And we’re seeing some positive signs payment plans are being set up. We have very high kept rate in terms of those effectiveness of those payment plans. And as the Commissioner commented, we’re getting some terrific feedback from the community about the balance we’re having to take very empathetically based on quite unique circumstances.

Thank you. So it it’s fairly, and this is not a criticism of you. It’s a comment about the situation. It’s fairly vague. And I understand that. So what does your research indicate will be the likely business insolvency rates for the next two years and across what industries and regions

Senator, I don’t know that the ATO, and they can obviously speak for themselves. We don’t know the ATO undertakes its own modelling or research in relation to business insolvency rates. And again, revenue group of treasury wouldn’t be the right agency to provide analysis in that regard. To just add to at least answer to your first question. I just wanted to check but the relief for directors against personal liability for insolvent trading, that was part of the initial package of measures has also expired. So, in that sense some of those initial early extreme COVID protection measures that were put in place at the depths of uncertainty have come to an end as the ATO indicated from their perspective, they now manage debt recovery in their cautious and targeted ways that they’ve indicated and are very conscious in terms of, in terms of the impact of their activities and seeking to maintain business viability while doing so. The government did outline some other insolvency reforms which I can get some information tabled if you like. I’d note that insolvency rates have been down quite significantly as a result of both some of those temporary measures, but also the additional financial support government has provided to businesses during the pandemic. I’m not aware of there being any spike in those insolvency rates since any of these measures have come to an end. But we would expect to see at least a normalisation of those rates.

Minister. Thank you. The early on. And in fact, the first and second day of sitting single day sessions on this coronavirus issue were on Monday, March 23rd, 2020, and then Wednesday the April 8th, 2020. And I pointed the government to Taiwan. Which has had a far superior performance to ours. They, despite having a population similar to ours, have had one quarter that casualties per million population that we’ve had. They did it without locking down. In the previous Senate estimate sessions, I confirmed with the Chief Medical Officer and the Federal Department of Health Secretary, the seven components that would be suitable for seven strategies for managing a virus comprehensively and properly. And the Federal Government has missed the two key ones. Never even looked at it even though they were mentioned months ago. And as I said on the first single day sessions back in 2020. I believe the Federal Government has mismanaged COVID. Now you probably won’t agree, but,

No I won’t Senator.

But you know, the facts are there. So, What’s happening is that the Federal Government has not protected people. And at the same time has decimated their economy and we are losing a lot of revenue.

Senator Roberts. Have you got a crisp question-

Yes. I’d like to know when the government is gonna come up with a proper comprehensive plan.

Well, as, you noted on the way through Senator Roberts, I don’t agree with your assessment there. Australia has some of the lowest fatality rates in the world and some of the strongest economic outcomes, a jobs market that is booming and is seeing levels of participation that are at record points for Australia and are above the performance of other developed economies. So Senator Roberts, I think we have a very strong record there as Prime Minister’s indicated. Has every decision that we have managed to, that we have made right throughout the course of the pandemic and being the one that we would make with the benefit of hindsight. No, of course not. If we’d been able to foresee every potential twist and turn along the way, we would navigate the route differently. But we’ve been dealing with the global pandemic with different variants that have come along to the COVID 19 virus and we’ve responded accordingly. We have applied through the last two budgets in economic recovery plan that has stimulated business investment that has seen the jobs market recover very strongly in Australia, that has seen the budget improve in ways beyond what had been forecast. And we’re obviously committed to continuing to implement that plan.

Thank you for that minister. I just quote some figures here from Adam Creighton. He’s a well respected, clear thinking economist who relies on data. And he’s pointed out, Australia overtakes Japan in COVID deaths, a densely populated nation with many old people that never once lockdown, never mandated vaccines and barely tested anyone. No riots, no tear gas. The lockdown argument has become a sad joke. You didn’t implement lockdowns, but you enabled the states to. Taiwan with a similar population to ours. We have 4.4 times higher death rate per million population. Taiwan never locked down. They properly tested, traced in quarantine. So my question was, when will you, I’ve checked with this Chief Medical Officer. There are seven strategies that he confirms. I’ve omitted none. I’ve got none that are in there that shouldn’t be there. Seven strategies. The government is not doing the two most important ones. When will you come together with plan

Senator Roberts? We have applied a plan right throughout the pandemic, responded to circumstances and have the clear economic recovery plan as I said before. I’d also just make the point in terms of your comparisons there, that lockdown is used as a single word or phrase to encompass what different people have in mind. There have been, in the countries you referenced, some very tight restrictions on human movement and activity in response to what, COVID 19 and limitations in terms of areas of activity that have had in terms of economic impacts and impacts on different businesses. Very significant impacts in parts of their economy. There are circumstances that every country’s grappled with. I don’t say that as in any way as a criticism. We have indeed engaged quite closely at different times with Japan and with Taiwan during the pandemic in terms of sharing information, in terms of assistance between between one another where possible for things like PPE or the like, so. There is much that we admire and respect about their responses, but I think to sort of characterise as you have that makes it sound like they’ve managed in a way where there haven’t been some very tight restrictions that are analogous in parts to the way some of the states have applied lockdowns or ongoing restrictions is not accurate in terms of what they have actually done in those countries or in the country of Japan and of course the economy of Taiwan.

Of Taiwan, which is way in front of us in terms of performance on COVID has not locked down. Their economy and their economy has basically suffered just a minor blip. I think 0.6 of-

Senator Roberts. I need to share the call.

Thank you chair. I’m finished.

Excellent.

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ATO Criticised for overly harsh crackdown

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The ATO has been criticised for garnishing alleged tax debts especially from small businesses even while they are still contested.

When you’re a small business, every dollar of cashflow matters and suddenly finding thousands or tens of thousands of dollars missing from your business account can kill your operation. I questioned the ATO about this and also the enforcement of FATCA, a taxation data sharing agreement with the United States.

Transcript

Senator Roberts

[Malcolm Roberts] Thank you. On a number of occasions, the ATO has been asked if it can provide a breakup of small-business tax debt into principal, interest, and penalty. The ADA’s consistent reply is that this breakup cannot be supplied. Is that still the case?

I’m Melinda Smith, Chief Service Delivery Officer. We, in the near future, we will be able to provide more detail around the construct of the debts. We, last year, changed our core operating system across to a system called ASFP. And part of the benefit of that was it gives us these flexibilities to be able to report. For our collection activities, that’s not information that is as critical to us as other information. So it hasn’t been a priority to be able to produce this immediately, but we are working on that. And I have Vivek Chaudhary, who is our Head of Debt, who might be able to give us a little bit more detail, he’s just teleconferencing in from lockdown. We might need to just unmute the cameras.

Mr. Chaudhary, can you hear us?

I can hear you very well, can you hear me?

Yes, no. We can hear you now, go ahead.

Thank you, Senator. Vivek Chaudhary, Deputy Commissioner of Debt and Lodgement. I am able to share with you that for month ending April 2021 the primary tax for all small business tax debt was 81.7%. A further 15.6% makes up interest, general interest primarily, but also short fall interest, and a small proportion, nearly 2% plus some decimal points, off penalties.

[Malcolm Roberts] Okay, thank you. So that’ll be regularly available in future?

Our plan is yes to provide that information in future.

[Malcolm Roberts] Thank you. Commissioner, are you familiar with the ATO’s failed leave to appeal to the High Court on the gold refining case known as ACN 154 520 199 Proprietary Limited in Liquidation versus Commissioner of Taxation?

Yes, I am and I’ll ask my colleague, who is Acting Second Commissioner, Law Design and Practise.

[Malcolm Roberts] So my question specifically on that is, some have said that the ATO’s appeal was a request to enable the ATO to rely on, effectively, email gossip to justify the raising of a tax debt; would the Commissioner view this as a correct interpretation or if not, what is your view?

This is Kirsten Fish, Acting Second Commissioner for Law Design and Practise, Australian Taxation Office. No, we wouldn’t agree with that characterisation. The litigation has been ongoing for quite some time. There was an AAT hearing followed by an appeal to the full federal court. On appeal to the full federal court, the Court found that there was procedural unfairness in the way the AAT had taken into account the evidence presented before the AAT, informing its conclusions on the anti-avoidance rules. The Commissioner’s appeal to the High Court was, well, application for special leave to appeal to the High Court, was in relation to that aspect, and whether there was a procedural unfairness in the way the AAT had approached the case. And whether, if there was, whether that impacted the outcome. So, the Commissioner’s application for special leave related to the way that the AAT conducts, takes into account evidence before it, and approaches its consideration of the issues. It was a matter of legal principle that we applied for special leave. Now, of course, having special leave refused, the matter will be returned to the AAT to be reheard. Again, by a freshly constituted tribunal, to determine whether the anti-avoidance rules apply or not. And that reconstituted AAT will, of course, take into account the evidence put before it.

[Malcolm Roberts] Thank you. In light of Minister Stuart Robert’s statement on Thursday the 13th of May, two days after the budget was delivered, what actions have you taken as the Commissioner, or within the ATO, to implement this government policy that small business will not be penalised until adjudicated on?

So, I can’t comment on announced but un-enacted measures. So, the announcement that you’re talking about was part of the budget measures to give the AAT powers to effectively grant a stay if the Commissioner is taking debt enforcement action while a matter is before the AAT. I can’t comment on the actual measure itself because it’s not yet law. But of course, in practise, we are very conscious And there are very few instances where we take stronger action in terms of garnishees, where a matter is in dispute. So, taxpayers have a lot of opportunities and we, it’s a part of our legal system, that if you disagree with the Commissioner, you have the opportunity to first object and then have your matter heard before the AAT. Where we have a genuine dispute we, in general, will pause debt collection activity, and we’ll only pursue debt collection activity where we see risk of dissipation of assets, or there’s fraud, or evasion, in the small market.

[Malcolm Roberts] It makes it difficult when the system allows the assessor to be the reviewer. And, as I understand it, that is the case within the ATO. And, also, there is enormous power within the ATO, and small businesses have been hurt by this, as I understand it.

Well, of course, in Australia we have multiple layers of review, and we’ve got a very strong independent review of our decisions in the form of the AAT. The AAT is constituted by some federal court judges, and other members of the profession. They are appointed by the Governor General, they are statutory appointments to the AAT. The AAT is completely independent of the tax office and provides a review of our decisions, and will determine, stand in the shoes of the Commissioner, and redetermine the matter. In addition to that completely independent review of our decisions, we have multiple layers of review available within the office. There’s a statutory right of review in terms of objection. And we also now have a small business independent review, conducted before assessment, which happens both independent review and pre-assessment, and objection post-assessment, happen in a completely separate part of the office to where the audits are undertaken. So in my area, in Law Design and Practise, we conduct that independent review, whereas under a Second Commissioner Jeremy Hirschhorn, that’s where we conduct the audit activity that creates assessments.

[Malcolm Roberts] Okay, Let’s move to something that’s out of your control, to some extent, and that, well, to the ATO, that’s FATCA; the Foreign Account Tax Compliance Act. And I understand it’s a difficult issue. And I can see the smile on your face. It’s, you must be tearing your hair out. FATCA, for those who don’t know, is a U.S. law requiring banks around the world to report accounts held by U.S. citizens, who are residents in other countries, including dual citizens. Despite FATCA’s significant and capricious impacts, and they’re truly horrendous on people in this country and around the world, why did Treasury or the ATO decide that individual deposit account holders were not significant stakeholders when preparing the post-implementation review of FATCA?

Senator, Jeremy Hirschhorn Second Commissioner, Client Engagement Group. Senator, in terms of the post implementation review, are you referring? Sorry, I’m afraid I’m not aware of the review.

[Malcolm Roberts] Apparently there is a review of FATCA and you have to make a report on deposit account holders and you have to send that report to significant stakeholders. But, apparently, deposit account holders were not considered significant stakeholders.

[Hirschhorn] I might pass my question…

[Mrakovic] Senator, I think that that issue probably falls with us, but I’ll have to take it on notice.

[Malcolm Roberts] Okay, thank you. And I appreciate the complexity, so. It’s a difficult, and you’re caught in the middle.

Senator, I know that you know, and you’ve just pointed out that FATCA is a unilateral measure. It is a decision by the U.S. to basically expect information. And to some extent, to some extent, we try to basically work with other countries in terms of, obviously, exchange of information. But we are very conscious of the fact that there are certain entities and certain, basically at the end of the day, the regulatory and tax framework in one country is different from another. And a lot of this sometimes involves trying to work with the two. But let me take the specific question on notice, so that we can give you the best answer we can provide.

[Malcolm Roberts] Thank you. It boils down, ultimately, I can’t read your name, Ms Mackenzie, is it?

Mrakovic.

[Malcolm Roberts] Mrakovic, it boils down ultimately to the US blackmailing. So, I’m working within that, that confine. While account holders are notified by their banks that their data will be sent to the ATO, pursuant to the FATCA agreement, neither the bank nor the ATO is required to notify the account holder of the actual data sent to the Internal Revenue Service in America under the FATCA agreement. Would it be possible for the ATO to provide this information automatically through the ATO MyGov portal in the same way that interest and dividend income is reported to recipients?

So, Senator, the information that we provide to the U.S. is a standard set of information that’s around account information. Often there will be an overlap with the information which we already have in our, in people’s pre-fill. So, generally, it will be things like bank interest, which we already pre-fill for people. I would say we have not considered whether there is some sort of separate reporting to individuals of reported data. We’d have to, we’d have to think about that.

[Malcolm Roberts] Would you be willing to listen to some of the people being affected?

So I think we’re, we’re very happy to speak to affected people.

[Malcolm Roberts] That’d be good because they’re very concerned about inaccuracies. They’re not accusing the ATO of any malfeasance, but they’re very concerned, because it impacts them. And I know from context myself, that entails a hell of a lot of money in accounting fees, legal fees, because the IRS is just unaccountable. It’s just the law unto itself. And that puts our citizens in the middle of that firing line.

And Senator, what I would say is if there is an individual who is worried about the quality of the data that has been provided, in the absence of a system based solution, which we would have to really take on notice and think seriously about, individuals should not be afraid to contact the office and we will see what information we can provide them.

[Malcolm Roberts] Okay, thank you, that’s very good. Because of the almost unique US, it’s almost unique, I think there’s one other country, with practising citizenship-based taxation, FATCA reporting includes reporting on the Australian income of Australian residents which is taxable in Australia, and for which the US must grant a foreign income tax offset, foreign tax credit in American terminology. This is not income that is being hidden from the US tax authorities. Has the ATO expressed to their US counterparts their support of a same country exception to FATCA as recommended by the US taxpayer advocate?

[Mrakovic] We’ll take that on notice.

[Malcolm Roberts] Okay. FATCA has some exemptions to reporting that are not included in the similar Common Reporting Standard, CRS. Under FATCA, accounts under $50,000, US dollars, and accounts held at local client-based banks, are exempt from being reported to the IRS. How is the ATO ensuring that these exemptions are being honoured and that data is not being over-reported to the IRS? Because, as I said, slightest mistakes cause Australian citizens, dual citizens, Americans resident in Australia, enormous grief with the IRS, and they’re innocent. The IRS is not innocent, the Australians are innocent.

So, Senator, I will take details of that on notice, but our reporting is, we are very aware of those rules, those exemptions from FATCA. I’ll take on notice, but I would hope to be able to provide comfort to you, Senator, that we do not report unnecessary accounts.

[Malcolm Roberts] Thank you.

[Chair] Last couple of questions Senator Roberts.

[Malcolm Roberts] Yeah, I’ve got two more. Thanks Chair. Will a Privacy Impact Assessment be conducted with regard to FATCA reporting?

[Mrakovic] Senator we will take that on notice?

[Reinhardt] No, I can.

[Mrakovic] Oh, you can?

Sam Reinhardt, First Assistant Secretary for Corporate and International Tax. So privacy, as part of the original RIS that was undertaken for the 2000, 2014 legislation, privacy issues were considered as part of that. And, in the regional legislation, the RIS Explains that and outline what was done in that, in that effect. And that was that the privacy concerns were addressed by creating a domestic regulatory environment. Now I understand, Senator, you’ve raised some issues that the ATO and Treasury have undertaken to get back to you on that, in relation to the current application.

[Malcolm Roberts] Okay, so, they’ve been sent? Because we received a whole flurry of questions, responses to questions on notice, at the end of last week.

So I think the responses to the question on notice, as you say, have been provided. The RIS a publicly available document and that outlines the privacy issues that were addressed as part of the original legislation.

[Malcolm Roberts] Okay. Thank you. What work has been done to verify that FATCA reporting is proportionate, and maybe the Minister can comment on this, is proportionate to the benefits of reporting to the respective governments of Australia and to the United States? I’m thinking of sovereignty issues. The fact that shareholders of banks will lose, because as I understand it, if we don’t bend to the US blackmail, then our banks can be taxed at 30%, was it? So that, that’s essentially blackmail. How much has FATCA increased tax revenues and or decreased tax evasion? And how much has the collection of FATCA data increased the risk of data breaches and or identity theft directed at account holders? These are significant issues affecting our citizens.

Senator, there’s some factual questions you asked towards the end of that, which of us officials have info?

[Mrakovic] So Senator, I’m going to take all of those questions on notice, because we’ll see where we can provide you with information. I just note that some of the questions that you are asking go to cost benefit analysis across two countries, kind of thing. And it will be very difficult for us to obviously provide substantive detail on that. But we’re happy to go away and see what information we can provide.

[Chair] Senator Roberts, we are gonna have to leave…

And more generally, Senator, I will take the more generalist question you asked on notice for any observations that the Treasurer may wish to make himself there.

[Malcolm Roberts] There are sovereignty issues. I’m going to have to finish up. There are sovereignty issues, there’s the cost to Australian taxpayers who are now paying pensions to people who’ve been overtaxed in United States. Questions of unfairness. And other countries are now starting to stand up to this and start fighting it.

[Chair] You made your point, Senator Roberts

[Malcolm Roberts] Thank you very much.

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