Struggling SMEs must co-operate with ATO or face crackdown

The ATO’s top small business official has urged small businesses struggling with tax debts that they must continue to lodge tax returns and co-operate with the ATO or face penalties that could include having their business wound up.

Assistant Commissioner Rod Ettridge, who is in charge of small businesses (those with less and $2 million) and the cash economy, says the ATO has stepped up its efforts to assist small businesses after a huge spike in demand from struggling business owners.

“We’ve seen a real increase in demand. If you look from January 2008 to January 2009 there was a 70% increase in demand and that’s tracked right through,” he says.

The ATO’s announcement that it would waive interest payments on tax debts for small businesses in the next 12 months was a direct response to this spike in demand.

“We’ve made a commitment to the small business community that we’ll be there for them,” Ettridge says. “We are talking here about people’s lives. These business owners don’t usually have a board of directors, they are the advertising guru, they are the marketing manager, they are the people who do all the work.”

But the ATO’s generosity does come with some strings attached.

Ettridge says the ATO is determined to “keep the playing field level” through the downturn and will not hesitate to crackdown on companies who stop lodging their business activity statements, become tempted to get involved in the cash economy and try to restructure their operations using so called “phoenix” vehicles.

The crackdown involves three strategies. Firstly, the ATO plans to target around 8000 companies who are showing signs of stress, such as late payments or lodgements of returns. In most cases, it will try to organise payment arrangements to help release the pressure. “We would much rather support those 8000 businesses and [make] sure they are still viable,” Ettridge says.

Secondly, it will target high-risk industries and take “firmer action” to ensure that activity statements are lodged and lodged correctly. A key weapon in this process is industry benchmarking, a process by which the ATO uses figures such as average levels of costs and expenses to try and predict a company’s tax obligations.

Finally, businesses that do not co-operate with the ATO by failing to pay debts or make payment arrangements, could face being wound up.

“We don’t take that action lightly … [but] w need to be really firm with them and if that involves taking them through to a wind-up, then so be it.

Ettridge’s key message: keep in touch with the ATO.

“If the ATO can help those businesses come out the other end then we will have a stronger business community at the end of this.”