Taxman’s knocking! What will he ask?

Times are tough and small and medium sized businesses are in the thick of it.

Pressures are mounting across the board – pressures on costs, pressures on prices, pressures of staffing – and pressures on complying with the tax laws.

We’ve all heard the old saying “I’m from the government, and I’m here to help you”. That might elicit a cynical reaction from many, but from what the Tax Commissioner has been publicly saying for some time now, there may be more than an element of truth in it this time round.

He has said that SMEs can expect the tax office to have a different compliance approach, reflecting the need to be more empathetic with small business.

All encouraging statements – but don’t forget that the tax office is there to collect the revenue.

I’m sure the Commissioner is genuine when he says he will help SMEs in these difficult times. He won’t readily waive tax bills of course, but he is likely to offer payment arrangements that take into account an business’s individual circumstances.

To put this in context, last year the Commissioner said the economic climate placed the tax office in a somewhat difficult position. On one side, he said it must be “vigilant for abusive tax practices”. On the other, the tax office is “committed to being empathetic to people facing genuine hardship”. But it has to balance this approach with the need to protect other businesses from unfair competition.

So, there is help at hand from the taxman – but it’s not infinite or totally open-ended.

In order to assist viable small businesses to stay on their feet during the economic downturn, the tax office says it has introduced a program of visits to discuss their plans for meeting various tax obligations.

The visits started on 9 March 2009. The tax office expects them to continue “for the foreseeable future” and it plans to visit businesses in various areas across Australia.

Will you be visited?  That depends.

The tax office says it will visit small businesses showing early signs of difficulty, such as later lodgement of activity statements or increasing debt levels. The idea is that the tax office will offer such businesses practical help to meet their tax and related obligations.

Topics that may be discussed during the visits include:

• Lodgement – of things like activity statements, tax returns, BASs, etc. The tax office can offer concessions or extensions on lodgements depending on the circumstances.
• Record-keeping – always a favourite. A long-time and well-worn issue, but if the tax office can help you get any problems sorted here, it can set your business up for a less hassled tax future.
• Options for activity statement completion.
• Availability of the Small Business Assistance Program.
• Options available for meeting pay-as-you-go instalments and withholding.
• Superannuation obligations.

SMEs can even ask the tax office directly to come out and help them with their tax compliance. A registration form asking for an assistance visit is on the tax office website. The tax office says it offers “free and helpful tax assistance – no strings attached”.

All assistance visits are covered by the Tax Commissioner’s guarantee. This means that they are educational in nature, and the information SMEs share with taxation officers is confidential and will not be used for any other purpose, the taxman says.

With the word “deficit” now appearing large on the scene, and with Treasury predictions of tax revenues falling by $115 billion over the next four years, it’s not difficult to imagine the Government asking the tax office to make sure it is collecting all the revenue it can.

That places the Tax Commissioner in a tricky position. He is there to collect the revenue, but he says he understands how tough the economic conditions are and that he will take a reasonable and sympathetic approach to business. I guess some tax revenue is better than none at all (that is, if a business goes bust) – but only to a point.

So the scene is set. Businesses with a good tax compliance track record (such as paying tax on time, lodging on time, etc), that now find themselves in an economic bind, could logically expect some helpful assistance from the tax office – it may be an extension to pay or an extension to lodge an activity statement.

That’s not to say businesses with a less than perfect tax compliance record will miss out. It’s just that the taxman will consider each situation on its merits. SMEs shouldn’t be shy in asking for help.

Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.