Budget 2022: ATO resources beefed up to tackle shadow economy and tax avoidance

The federal government will increase funding to the Australian Taxation Office to the tune of millions of dollars to beef up the tax office’s compliance programs, including those directed at the shadow economy and income tax deductions. 

The additional funding, included in Tuesday’s federal budget, comes at a time when the tax office is already resuming its pre-COVID enforcement activities, including collecting small business debts and issuing director penalty notices.

The ATO will see funding for its Tax Avoidance Taskforce increased by approximately $200 million per year over four years, effective July 1, 2022, while the taskforce itself will also be extended by another 12 months through to July 2025. 

Both the extension and increased funding will allow the taskforce to “support the ATO to pursue new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses”, according to the budget papers. 

The government expects the measure to increase receipts by $2.8 billion and increase payments by $1.1 billion over the forward estimates. 

At the same time, the ATO will also be given additional resources to extend its Personal Income Taxation Compliance Program for another two years, from July 1, 2023. 

The $80.3 million extension is expected to deliver $674.4 million in increased receipts to the government, as well as increased payments of $80.3 million, over four years. 

This compliance program focuses on taxpayers who overclaim deductions and incorrectly report income. 

The government says the new funding will allow the ATO to “modernise its guidance products, engage earlier with taxpayers and tax agents and target its compliance activity”. 

Business operators that engage in shadow economy activities are also being put on notice that the ATO’s Shadow Economy Program will continue for another three years, from July 2023. 

The extension of the program will allow the ATO to “continue a strong and co-ordinated response to target shadow economy activity, protect revenue and level the playing field for those businesses that are following the rules”, the government said in the budget papers. 

While the budget papers don’t indicate what the extension will cost, the government is expecting it to deliver increase receipts of $2.1 billion and increase payments by $685.2 million over the next four years. This includes increased GST payments to the states and territories of $442.3 million. 

Finally, the Tax Practitioners Board (TPB) will also receive $30.4 million over four years to “increase compliance investigations into high-risk practitioners and unregistered preparers”. 

According to the budget papers, the TPB will “use new risk engines to better identify tax practitioners who engage in poor and unlawful tax advice, to improve tax compliance and raise industry standards”. 

This is expected to increase receipts to the government’s coffers by $81.9 million, and increase payments by $30.8 million over the four-year period. 

Modernising business registers program gets funding boost

With Assistant Treasurer Stephen Jones foreshadowing a $1 billion blow out in the cost of the ongoing Modernising Business Registers program in the lead up to the budget, the government has increased funding to the program by $166.2 million over four years. 

Of that figure, $80 million will be allocated for the ATO and the Australian Securities and Investments Commission (ASIC) to continue designing and delivering the program, which will bring together more than 30 business registers in a bid to reduce red tape for small businesses. 

Another $86.2 million in funding over four years will go towards the ATO’s and ASIC’s work on the Director Identification Numbers (Director IDs) scheme and to maintain ASIC’s registry systems. 

Other tax measures in the federal budget include:

• A plan to introduce legislation to clarify that digital currencies, including Bitcoin, will continue to be excluded from the Australian income tax treatment of foreign currency;
• Cuts to taxes on electric vehicles (read more here);
• Aligning the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs (effective 7.30pm, October 25, 2022);
• Making select state and territory COVID-19 business payments and grants non-assessable, non-exempt for income tax purposes; and
• The government’s previous announced measures to tackle multinational tax avoidance.