Date posted: 1/12/2017 5 min read

ATO's 2018 hit list targets smaller tax avoiders

In an interview with Acuity, Australian Tax Commissioner Chris Jordan FCA spells out his new agenda for 2018, where he sets small business and big spenders in his sights.

In Brief

  • ATO Commissioner Chris Jordan gives Acuity the first detailed explanation of his 2018 tax “hit list”.
  • The hit list focuses on small businesses and individuals, after several years of focus on large businesses and multinationals.
  • Undeclared income, wrongly-claimed expenses and unpaid superannuation are key features of the 2018 hit list.

By David Walker.

Australian Tax Commissioner Chris Jordan has revealed in detail the tax issues that the Australian Tax Office will target in 2018 as it moves its focus to individuals and small business.

The hit list for 2018 and beyond includes undeclared business income, wrongly-claimed non-business expenses and unpaid superannuation guarantee contributions.

In a frank interview with Acuity, Jordan confirms the ATO believes it can now gain more from these smaller targets than from large multinationals. Big businesses, from BHP Billiton to Google, have been the highest-profile ATO focus for most of Jordan’s time as commissioner.

Jordan told Acuity that the “tax gap” – the estimated gap between tax theoretical tax payable and the amount actually paid – is bigger for small taxpayers as a group than for its “large market” group of big businesses. The ATO estimates the large market tax gap at A$2.5 billion. 

(Pictured: Chris Jordan, Australian Tax Commissioner)

Next year’s hit list is based both on internal ATO work and on the work of the federal government’s Black Economy Task Force, says Jordan. The Task Force report is yet to be released.

Here the Tax Commissioner walks Acuity through the detail of the ATO’s 2018 list of target issues one by one:

  • Undeclared income: “If we look at cash businesses, for example, why today do people want to have a cash-only business?” Jordan asks. “People say to me: ‘it’s terrible – people steal the money, you’ve got to count it, you’ve got to reconcile it, you’ve got to have security around it, you’ve got to take it to the bank’ … There’s no compelling business reason to have cash only.” Cash-only businesses are often paying cash salaries, and that may mean employees are also failing to receive proper conditions and benefits.

  • Unexplained wealth or lifestyle:Jordan gives the example of a business-owning family which has reported parent incomes of $70,000 and $50,000, but has three children at private schools and has taken business class flights on overseas trips three times in the past two years. The ATO can source such information through feeds from the Department of Immigration, and even Facebook when the ATO risk filters throw up flags, he says. 

  • Private expenses wrongly claimed: Salary and wage-earners are claiming expenses that they can’t prove are related directly to work. And there are “small businesses that are mingling some of their private expenses with their business expenses”. Jordan acknowledges expenses have long been an issue for the ATO, but  he wants to “renew the discussion to highlight that we are going to be focusing on these areas”.

  • Unpaid superannuation guarantee contributions: Unlike cash wages, unpaid contributions create “a real loss” for the employee, he says, so there will be “a much greater focus” on the issue. The new single-touch payroll reporting system, which starts in July 2018, will provide the ATO with much better and earlier information on unpaid contributions.

  • Concentrations of cash-only businesses: The ATO has been making visits to businesses based on a data map of cash-only businesses and those which do not much use electronic payment facilities. Suburbs visited include Sydney’s Cabramatta and Haymarket. Some visits have been made in tandem with the Fair Work Commission or the Department of Immigration. “Often there are people there that are not supposed to be working, or they’ve overstayed visas,” he says.

He also repeats previous concerns that tax agents often fail to check that individual taxpayer clients have actually spent money before on “standard” claims for clothing, laundry and car expenses.

As commissioner, Jordan says he needed to previously address the tax failings of large businesses before he could turn his attention to smaller businesses and individuals.

He also criticises the attitudes of people who take a casual approach to paying their own tax but are outraged to hear of people abusing the welfare system. Cash payments facilitate welfare fraud, he notes. And he points out that undeclared income is one area where the ATO can use its data intelligence and analytics better. 

Related: ATO powers up with data-matching tech

More powerful data-matching tools from the Australian Tax Commissioner are catching out more tax avoiders. What can accountants do to comply?

David Walker is commissioning editor of Acuity magazine and an editorial consultant to a number of Australian finance businesses.