How the Australian government stitched up its own tax office

If there was ever going to be an unenviable time to work for the tax office, the start of financial year 2019-20 would be it.

End of financial year is meticulously planned by the ATO, and usually, the intricacies of tax regulation or a temporary outage in online services would go unnoticed by most.

But with a $1,080 tax offset on the table for an estimated 4.5 million Australians and 600,000 or so small businesses preparing to switch to a new payroll system, tax time 2019 was never going to be normal.

In the less than two weeks since the government passed its $158 billion income tax package, more than a million taxpayers have flooded ATO call centres.

The ATO said last week resources have been reallocated to manage the greater-than-expected number of enquiries as officials deal with much higher interest than is typical two weeks into the new financial year.

Recognising the ongoing rollout of single touch payroll (STP) reporting would delay the finalisation of income statements for many employers this year, the tax office has been urging taxpayers, as it has done before, to wait until August before lodging returns.

While Treasurer Josh Frydenberg is evidently enthusiastic about an increased number of taxpayers rushing to claim their offsets, many still can’t lodge their returns.

While employees in STP-enabled companies can expect pre-filled boxes when lodging online, they won’t be able to complete a return unless their company finalises their income statements, the deadline for which is July 31.

About nine million workers also won’t receive an annual payment summary this year, many for the first time, but everyone else should have (the deadline for non-STP companies was July 14).

The @ato_gov_au has received over 1 million tax returns for the 18/19 year!
As of this morning over 1.1 million tax returns have been lodged compared to around 600,000 at the same time last year. Despite Labor’s opposition, Australians have now got the tax cuts they voted for!

— Josh Frydenberg (@JoshFrydenberg) July 11, 2019

It’s a bit to deal with for taxpayers, many of whom have been receiving summaries for decades, and also the tax office, which is itself still learning the best way to handle, process and analyse the mountains of new data it’s receiving from real-time payroll reporting. 

Asked on Monday whether there was a concern the Treasurer was encouraging taxpayers to lodge returns in contrast to his tax office’s advice, Frydenberg’s office said “no”. 

In a statement, an ATO spokesperson said it is able to serve taxpayers who lodge in August better, with an easier lodgement process.

“Staff from across the ATO are contributing to our efforts to help clients during tax time, which includes providing additional support on our phone lines,” the spokesperson said.

“This support is not causing any personal inconvenience; their working hours are not changed or the office they are based out of.

“During tax time, the ATO offers overtime opportunities where appropriate, however, this is a voluntary process.”

Asked now to pat its belly while rubbing its head by administering the tax offset alongside the “biggest compliance undertaking since the GST”, the ATO is still untying its hands.

Just a fraction of the 700,000-plus small businesses who will, by September 30, be required to sign up for STP reporting or apply for a deferral have done so, and while many more are expected in the coming months, the tax office is still playing catch up on program awareness.

Several recent industry surveys indicate awareness of the program, particularly among businesses with four or fewer workers, is lacking. Meanwhile, the now-resigned STP program lead John Shepherd conceded last month awareness among regional firms was “very, very low”.

A YouGov Galaxy survey of 517 micro-business owners in April found 70% didn’t know what STP was, while a further 55% had “little knowledge” about getting compliant.

While accounting bodies forewarned government about the difficulties of convincing micro-employers to adopt digital payroll, it nevertheless dragged its feet on passing legislation to implement the program. A bipartisan bill was introduced in March 2018, but only passed last February.

This left the tax office with limited options, aware of the task ahead but unable to launch a fully-fledged outreach campaign to small businesses. By the time government did pass the bill, caretaker mode was imminent ahead of the May election.

It was only after the government was returned, and amid new talk of incoming tax cuts to be administered within a month, that the ATO was able to really get into gear, launching a nationwide marketing campaign in early-June, specifically targeting regional areas.

It sent emails and letters to tax agents and employers, sent officials to as many industry events as possible, and handed out as many fact sheets as it could.

While the ATO has not confirmed how many micro-employers have been approved for deferrals, about 85% of small businesses were still missing from the STP reporting pool on July 1.

About 48,000 businesses switched to the new system during the ATO’s ad blitz in June, bringing the total number of small employers reporting real-time payroll to 107,000 by end of the financial year.

But that figure includes about 15,000 small employers which adopted the system early and were already reporting under STP last October.

The government, interested in the data-sharing benefits of the payroll scheme, has already unveiled what’s been dubbed ‘STP 2.0’.

But those benefits will only flow if employers large and small can be successfully onboarded onto the system over the next year, a daunting enough task outside of the political timetable.