The Taxman Cometh

Japanese abacus 02
Image: A Davey Coogan

I overheard a snippet of conversation outside the newsagency this week which I now embellish for literary purposes.
Bloke:“Whatcha up to?”
2nd Bloke : “I’ll be doin’ the books this arvo and probably tomorrow too.
Bloke: “Ugly. Don’t you have until October 31?
2nd Bloke: “Mate, if you don’t do it now, when are you gonna do it?”
Good point, given that the end of the financial year (June 30 for some countries), has come and gone. It’s true that the Australian Taxation Office (hereafter called the ATO), nominates October 31 as the last day to lodge your tax return – a fair bit later if you use a tax agent or accountant. You can download etax and do it yourself (most of the information is pre-loaded thanks to data-matching). But for those of us who wake up on Boxing Day with a hangover and a sudden rush of anxiety about the shoebox full of receipts, it’s time to find a tax agent.

Growth is good!

It’s good to see a successful business growing and the ATO is certainly growing, but it has apparently automated many of its functions. The ATO has only increased its staffing levels by just less than 1% a year or 5,785 people since 1987. Over this 28-year period, the ATO has picked up a bit of work (collecting $419 billion in tax from 16.5 million tax returns, administering the GST, supervising Australia’s 534,000 self-managed super funds, getting its collective head around 125 separate taxes and being the “custodian” of the Australian Business Number system). (She Who Puts Up With Me (thanks Rev), says a custodian is, strictly speaking, someone who safeguards something without doing much work).
This probably explains why it took months for someone to follow up the polite letter I wrote pointing out that whoever input the ABN data had mis-spelled my middle name. The person who called back explained how I could register online and make the correction myself. My complaint about the ATO and that other Commonwealth behemoth, Centrelink, is that their call centres are clearly over-burdened. The ATO logged more than 11 million calls last year, although they say 78% of calls were resolved first time round.
About 12 million of Centrelink’s 43 million calls in 2013-2014 reportedly went through to the keeper. Both agencies are increasingly trying to get “clients” to go online and do the work themselves. I have been studiously avoiding doing this with Centrelink. One the rare occasions when I have something to report, I write a short, unambiguous letter. No-one ever writes back. I keep a copy on file, just in case. But that’s another story.

Top heavy PR

This week the Canberra Times reported that the ATO was targeting redundancies in its marketing and communications unit. Noel Towell reported that the ATO found the unit’s staff was spread over 17 offices throughout Australia, often working to different performance standards. The unit is top-heavy with executive level 1 staff with a shortage of lower-ranked public servants. (Towell’s article does not go into this detail, but just so you know, an executive level 1 public servant earns about $100k, while APS4 to APS 6 get by on $63k to $89k).
The ATO had already cut its communications and marketing staff from 520+ in March 2014 to fewer than 400. The new cull aims to get rid of 30 executive level jobs while promoting the rank and file to middle managers. If this unit was responsible for the latest annual report, the razor gang may be a bit too penny-wise. The overview pages are easy to understand and use graphics to tell the story.

They are watching you

One of the unit’s missions is to get the word out about which professions or workplaces the ATO is homing in on this year. Previously, these efforts have focused on tradespeople and small businesses. The brief, I believe, is to make people think they’re on to you. You’d think they’d be happy with $321.7 billion in tax receipts, but it’s probably the $97.5 billion in refunds which is bothering them.
I suspect this is all about making Honest John the taxpayer feel like he’s doing something wrong. And if he actually is, even if it’s a mistake, there will be hell to pay. Investigators are just waiting to pounce from the shrubbery to nail you for buying a new microwave for the office kitchen and then taking it home, replacing the clapped out office one with your four-year old household appliance which has scrubbed up pretty well. (I read that somewhere).
However, this year the ATO is targeting the 1.8 million people who own an investment property. Those who struggle to make mortgage payments or pay rent may be peeved to learn that investment property owners claim on average $25,717 in deductions every tax year. (A couple on Newstart get $24,366 – just saying).
Deductions include interest on loans and write-offs on capital works and other items. The ATO wants owners to know they should only claim for periods when the property was rented or genuinely available for rent.
Periods of personal use cannot be claimed. Apparently, some home-owners claim deductions for their holiday pad on the grounds that it is being rented out (to the owners, their family and friends). There are also a few instances where husbands and wives split income and deductions, with most of the tax benefit going to the higher-earning spouse, even though the property is owned 50:50.
We can’t have that sort of dodgy behaviour going on in small business can we? The tabloids and current affairs shows will be on to you too.

Small beer

But SWPUWM says that’s small beer compared to the recent revelations about the scale of offshore tax shenanigans by the multinationals (including the owners of said tabloids and current affairs shows). Many multinationals pay less than 5% tax in any given year by using offshore tax havens. The noose is tightening though, as you might have observed this week with a Senate committee grilling Big Pharma executives about their tax arrangements.

It’s great that the ATO is cracking the whip about large-scale avoidance, evasion and fraud. You can see it by the way they are trimming 4,700 people from their workforce. The ATO employed 23,631 people as of June 2014, of whom 2,764 worked part time. They’ve axed 3,000 jobs already and another 1,700 will go by 2018. Almost 25% of the culled jobs came from the audit team, which, as the Sydney Morning Herald rightly observed, exists to investigate and enforce tax compliance by individuals and multi-national companies.
I’m no mathematician, but somehow, that just doesn’t add up.
(Disclaimer: No GST inputs or deductions were claimed by the author.)