ATO’s helping hand

At this stage of the downturn we would expect to see company insolvencies leaping, as we did towards the tail end of the 1990s recession.

But as we report today, it’s not happening. One main reason is that the Australian Taxation Office has changed its approach. I heard today that the ATO usually has around 60,000 businesses and individuals under case management but that has now reached more than 300,000.

And we already know the ATO is owed $6.5 billion from 706,000 micro businesses (turnover of less than $2 million.) More will be owed by companies over that threshold. Worse, many businesses have owed the ATO outstanding payments for some time. I think the first time I heard that $6 billion figure from the ATO was over a year ago and it just gets bigger.

If the ATO took action, insolvencies would be skyrocketing, company directors losing their homes, there would be far more hard luck stories in the media and there would be enormous pressure growing on the ATO and the Government to act.

But instead, the opposite has happened. The ATO has been running a big PR campaign to put the message out that while they are aggressively chasing tax avoiders, viable businesses caught out and unable to meet their tax obligations can strike a payments deal with the tax office.

For example, the ATO commissioner Michael D’Ascenzo has been encouraging businesses with short-term cashflow difficulties to vary their installment rate downwards, in line with their likely end of year tax performance, saying they can be confident that shortfall penalties will not be imposed if reasonable steps are taken to get the variation right.

He says if a taxpayer was queried in relation to a variation, the ATO would look to see if there was a logic or method behind the calculation. This could include a calculation of likely tax payable and a comparison to installments already paid. The ATO will give fair latitude as to what is reasonable – particularly where the taxpayer has a good compliance record.

The PR has been followed up with specific measures including offering businesses with annual turnover of less than $2 million and have an activity statement debt, a 12-month general interest charge (GIC) free payment arrangements until 30 June, 2010. The ATO is also offering deferment for up to two months of the payment date for activity statements.

It appears that the customer focus message has truly hit the ATO. By assisting viable businesses through these difficult times, the ATO will win in the long-term because its revenue will return to pre-downturn levels.

Besides, what are its options? Sending tens of thousands of businesses to the wall?

The ATO and its Commissioner deserve a pat on the back for the current approach to the credit crisis. But what we don’t know is whether this rational approach will last. We all know what many business owners are like: if they don’t have to pay a bill until they absolutely have to, they won’t.

So what happens in a few years as the debts on these payment plans rack up? What will the ATO do then and what will their approach be? Let’s hope the current culture and approach emerging under this commissioner survives. But business owners should not fall into the trap of deferring their payments continually because they perceive the ATO has gone soft.