Tax recap: The 23 updates, reforms, and crackdowns that defined 2023

It was a year of transition for the Australian Taxation Office: after an extended period of leniency shown to small business taxpayers struggling through pandemic lockdowns, 2023 marked a reversion to the norm.

That transition is sweeping up small businesses struggling to stay afloat in choppy economic waters, yet the tax office maintains that support — at least, empathy — is available to those who work to pay down their obligations.

Here are 23 of the key stories out of the ATO this year.

1. Collectable debt

The scale of collectable debt in Australia informed much of the ATO’s work in 2023.

The figure: $45 billion owed by businesses, as of September, with $33 billion of that owed by small businesses.

2. Collection priorities revealed

In numerous forums over the year, the tax office highlighted unpaid superannuation, audit-raised liabilities, GST tax refund fraud, aged debts, and fresh self-assessed employer-based debts as top targets for collection.

3. Rising Director Penalty Notices

Director penalty notices are du jour in the ATO’s crackdown on company directors who fall foul of their tax obligations.

ATO commissioner Chris Jordan recently confirmed the tax office has fired off 31,000 Director Penalty Notices.

4. ATO alerts to credit agencies about debts

DPNs are hardly the only tool the ATO is using to clamp down on late payers.

It has recently alerted credit bureaus to more than 10,000 debts over $100,000, Jordan added.

5. ATO-initiated court actions

The tax office ramped up its legal proceedings against businesses that fell short of their tax obligations.

Data compiled by Alares shows a significant uptick in winding-up orders initiated by the ATO through 2023, compared to 2020-2022.

Monthly winding-up orders initated by the ATO. Source: Alares

6. Resurrection of ‘on hold’ debts

Proving the ATO’s desire to recoup outstanding debts, it is resurrecting around $274 million of ageing debts previously deemed as ‘on hold’.

In recent letters to tax agents, the tax office said those amounts may be subtracted from the debtor’s income tax return or other tax credits.

Some of those debts are exceedingly old, and many amount to a few cents, surprising some taxpayers and their agents.

The Guardian reports the ATO later apologised for any “unnecessary distress” caused by the letters.

7. ‘Free loan’ warning

While recognising the vast majority of small businesses try to do the right thing, Jordan also laid down a warning to enterprises treating unpaid tax liabilities as a cheap loan.

“We are hearing more and more from tax professionals that some businesses are rolling the dice, treating ATO liabilities like a free loan,” he said.

“This is not acceptable,” he said.

It was a strong statement, given the cash-flow crunch affecting many small businesses.

However, Jordan reiterated that the ATO is trying to be “fair and empathetic in our administration”.

For businesses that are truly unable to meet their tax obligations, Jordan suggested a graceful exit through the insolvency system.

8. Crackdown on technology used to dodge tax

The shadow economy doesn’t just include ‘cashies’, and the ATO this year noted a crackdown on the technology used to dodge tax obligations for card and digital payments.

The Serious Financial Crimes Taskforce said it was aware of businesses using advanced electronic sales suppression tools (ESSTs) to alter sales records.

“If you are a business using ESSTs, we strongly encourage you to come forward and make a voluntary disclosure rather than wait for us to contact you,” the taskforce continued.

9. AI detecting superannuation errors

As Australia’s private sector dabbles with artificial intelligence through chatbots, digital legal assistants, and image generators, the ATO reiterated its use of AI to track down superannuation guarantee cheats.

The ATO this year said it has secured $295 million in unpaid superannuation liabilities with the help of its AI data analysis tools.

Its AI tools are trained according to a set of ethics principles. A tax office spokesperson said that includes directives not to unfairly discriminate against small businesses.

10. Failure to Lodge penalty amnesty

Some leniency did make its way to business taxpayers through the Failure to Lodge (FTL) penalty amnesty.

Under the amnesty, businesses that confess certain unpaid tax obligations incurred between December 1, 2019, and February 28, 2022 can dodge late payment fines.

Those looking to take advantage better hurry: the cut-off date is December 31 this year.

11. Tax clinic support

The 2023-2024 federal budget committed $9 million to expand the tax clinic program, which connects taxpayers and small business owners with free advice provided by volunteers.

Tax clinics exist in universities across the country, with accounting students providing helpful, practical tips to those struggling with their obligations.

The services are much needed: speaking to members of Western Sydney University’s tax clinic last month, Small Business Minister Julie Collins was told of a client who approached the clinic with tax debts dating back 23 years.

12. Updated instant asset write-off

With the expiration of the temporary full expensing scheme on June 30 this year, the federal government re-implemented the instant asset write-off scheme.

Instead of allowing it to revert to its old $1,000 limit, the federal budget established a new limit: $20,000.

The measure is yet to be legislated, and the Opposition is pushing for the new instant asset write-off threshold to hit $30,000.

13. Small business energy incentive

The federal budget also introduced the federal government’s Small Business Energy Incentive, a plan offering sizeable tax breaks for energy-efficient upgrades.

The plan offers eligible small businesses bonus tax deductions of up to $20,000 for expenditure on assets that supersede older, less-efficient equipment.

This measure is also subject to legislation and is wrapped in the same bill as the instant asset write-off.

14. End of LMITO

Many Australians found their 2022-2023 income tax return was lower than previous years, thanks to the end of the low and middle-income earner tax offsets (LMITO).

The ‘lamington’, as it was known in some accounting circles, provided up to $1,500 in benefits to taxpayers earning less than $126,000 per annum.

15. PAYG uplift reduction

To ensure small businesses were not walloped with a 12% increase to their quarterly GST and PAYG instalment amounts, the federal government instead instituted a 6% uplift factor for the 2023-2024 income year.

The plan found a “balance between improving cash flow for small businesses and managing income tax and GST liabilities,” budget papers stated.

16. Stage 3 tax cuts remain

While the federal budget included a surprising number of tax tweaks covering the small business sector, one key tax measure — Stage 3 tax cuts — remained unchanged.

As it stands, the tax break championed by the former Coalition government and supported by the Labor government will begin in the next financial year.

The plan hinges on the creation of a jumbo-sized 30% tax bracket for those earning between $45,000 and $200,000, and the abolishment of today’s 37% bracket.

Critics have lambasted the Stage 3 tax cuts for disproportionately benefiting high-earning Australians compared to their lower-earning counterparts, particularly in a broadly inflationary environment.

Even so, they are still on the cards. For now, at least.

17. Changes to WFH income tax deductions

Changes to tax deductions for working from home expenses accompanied the return of many employees to the office.

The ATO’s ‘fixed rate’ scheme, which allows workers to calculate many of their working from home expenses on an hourly basis, jumped from 52 cents per hour to 67 cents.

In exchange, taxpayers had to keep a diarised logbook of each and every hour worked from home, starting from March 1, 2023.

18. R&D tax incentive errors identified

Advisors helping their business clients navigate the world of research and development tax breaks were advised to take a closer look at the paperwork.

The notice came after the tax office identified potentially costly errors in claims being made.

19. Major questions over Division 7A ‘loans’

One of the most significant tax rulings of 2023 was not made by the Australian Taxation Office at all.

It came through the Administrative Appeals Tribunal’s (AAT) decision in the case of Bendel vs the Commissioner of Taxation.

The case concerned the tax treatment of unpaid present entitlements (UPEs).

UPEs are funds a trust allocates to, but has not yet paid to, a private company beneficiary.

UPEs can sometimes be packaged as ‘loans’.

To stop trusts and private companies from skirting their tax obligations by disguising dividends as UPEs, Division 7A of the Income Tax Assessment Act sets out rules for how UPEs can be packaged as ‘loans’.

‘Loans’ compliant with Division 7A must be written in accordance with benchmark interest rates, and minimum payments on the principle are required, with the goal of limiting their effectiveness as a tax-minimising tool.

Non-compliant ‘loans’ can be assessed as dividends for tax purposes.

The AAT decision shook that framework.

In the Bendel case, the AAT found:

The balance of an outstanding or unpaid entitlement of a corporate beneficiary of a trust, whether held on a separate trust or otherwise, is not a loan to the trustee of that trust.

The decision raises questions about the ATO’s interpretation of Division 7A stretching back almost a decade.

But the ATO is appealing the decision, and accountants have warned trustees and beneficiaries not to make any rash decisions about UPEs because of the non-binding AAT ruling.

20. Multi-billion dollar TikTok GST scam

The full scale of GST refund fraud was exposed in 2023.

Aided and abetted by misinformed or actively malicious claims on social media, an estimated 56,000 Australians claimed GST refunds for business expenses that simply never existed.

Prodding by the Australian Financial Review this year revealed the cost of that fraud wave: $4.6 billion.

Operation Protego, a collaboration between the ATO and the Australian Federal Police, was launched in 2022 to crack down on those false claims.

In September this year, a Mildura man snagged by Operation Protego was sentenced to seven and a half years in prison for GST fraud, totalling $837,437 in bogus refunds.

21. Tax advisor scandal and its lingering fallout

One of the biggest stories of the year broke in January, and the ATO was caught in its centre.

The Australian Financial Review blew the lid off the PwC scandal, in which a senior tax expert was found to have leaked confidential government tax plans to the consultancy’s clients.

The fallout of that story continues.

At both the federal and state levels, lawmakers are pushing for harsher penalties against tax advisers who act improperly with sensitive information.

22. ‘Fame tax’ ruling

Celebrities, sports people, and influencers who license out the use of their image were put on notice by the ATO this year.

Specifically, the tax office took aim at notable taxpayers who grant their image rights to a trustee.

In many circumstances, earnings accrued by that trustee count as personal income, not business income, and are assessable as such.

Experts said the ruling could have significant ramifications on big-name stars, and might even convince a few to rethink their tax residency.

23. A ‘BAS-free’ future?

Outgoing ATO commissioner Chris Jordan recently affirmed the tax office’s commitment to digitalisation.

It has high hopes of becoming fully digital by 2030, in line with its international counterparts.

That vision includes the potential for a “BAS-free’ future”, Jordan said, imagining a world where tax is both reported and paid in the same instant.

BONUS: New ATO website

The ATO’s modernisation efforts extend to its website, which is undergoing a major facelift.

A beta version of the refreshed website is now available to visit.