Review slams ATO’s technical capabilities on SME issues, finds firms win 58% of disputes

A report by the Inspector General of Taxation has uncovered a lack of resourcing and poor technical ability at the Australian Taxation Office, which has led to 58% of medium-sized company tax disputes being upheld in favour of the firm.

The review by the Inspector General specifically looked at small- to medium-sized enterprises with annual turnovers of between $100 million and $240 million, as well as high wealth individuals with more than $30 million in assets.

Widespread dissatisfaction with the ATO has been an issue among these groups despite the ATO receiving $273 million of additional government funding to collect $2.5 billion in direct and indirect revenue from high wealth individuals and larger SMEs over a seven-year period.

The report found that when an SME objected to an assessment the Tax Office’s view was only upheld in 42% of cases and SMEs were successful in 58% of cases and issued with a revised tax bill.

It also found that costs imposed as a result of ATO information gathering and related compliance action were another very significant area of concern for taxpayers and their advisers.

The Inspector General made 41 recommendations to the ATO in the report and the Tax Office has agreed partially or fully to all but one of the recommendations.

The recommendations include improving the technical ability of ATO staff through training, improving their understanding of commercial and business issues, better matching the complexity of case work with staff training and experience and improving ATO recruitment.

The Inspector General of Taxation, Ali Noroozi, told SmartCompany the review was carried out in response to concerns that larger SMEs and high-net worth individuals may be unfairly treated and subject to unnecessary compliance costs, delays and inappropriate conduct as well as lack of commercial awareness and technical knowledge of ATO staff.

“[The ATO] needs to improve their technical capability,” says Noroozi.

“The ATO has already acknowledged that they need to improve things for the years ahead, they have already started the body of work and we will be working with them.”

Noroozi says a key outcome of the report for SMEs will be the ATO’s decision to enhance and extend the scope of its Wealthy and Wise booklet to all SME taxpayers.

“This review was only looking at high wealth individuals and larger SMEs but what we have agreed to with the Tax Office is that they will provide the booklet to all SMEs all the way down to $2 million in turnover,” says Noroozi.

“[The booklet] spells out what the Tax Office should do and almost like a bill of rights for tax payers it is a means for all SMEs to hold the Tax Office to account.”

Noroozi says SMEs and taxpayers can expect change at the ATO but they may have to wait awhile.

“The implementation of these recommendations together with the program of work already commenced by the ATO should result in significant improvements in this area of tax administration,” says Noroozi.

“However, these improvements may not become apparent immediately as staff capability, for

example, may take some time to develop.”