A “goldilocks” approach to advice would help iron out the mistakes that lead to shortfall.
$15bn of tax gap down to simple errors, says ATO
Poor advice and simple errors are responsible for much of the $15 billion small-business tax gap, ATO second commissioner Jeremy Hirschhorn said.
He said the office was looking to improve the tax advice process to close the gap, which accounts for more than half the $33.5 billion total shortfall.
The Tax Office estimated for 2018-19 that it was operating at about 93 per cent tax performance, with 91 per cent at lodgement and a further 2 per cent through the ATO’s compliance actions.
That 2 per cent added up to $10 billion and left an estimated gap of $33.5 billion.
Mr Hirschhorn said the ATO saw a relatively large number of businesses make simple mistakes often based on poor systems and not getting the right advice.
“We know that you want to give your clients the best tax advice, but that tax is hard and not always black and white,” Mr Hirschhorn said at CPA Australia’s Public Practice Retreat earlier this month.
“For the vast bulk of advisers there is a ‘goldilocks’ spot – you want to give your clients good, solid advice that is neither overly aggressive, but also not overly conservative (including in relation to other advisers).
“Similarly, most clients don’t want the excitement of a tax dispute, but equally are not necessarily enthused about paying more tax than they need to.”
Mr Hirschhorn said the major contributions to the tax gap for individuals and small businesses were not actually these “hard” issues, but often relatively simple errors.
“The question for the ATO is how do we help you achieve a ‘goldilocks’ outcome on the hard things while leaving you enough time and focus to make sure that the simple things are done well,” he said.
“Critically, the ATO cannot and does not expect advisers to be ‘tame’ – you have a duty to your clients as well as to the tax system in which we all operate.
“The cornerstones of our approach are: providing certainty, early engagement and minimising the risk of errors.”
Mr Hirschhorn said the ATO was committed to providing practical certainty on issues that prove most challenging across the system through its advice and guidance products.
“Our perspective is that it is better for you to know the ATO view,” he said.
“In some cases, this may help prevent you from making a mistake, or at least give pause for thought.
“In other cases, your client may want to avoid the risk of getting caught up in a dispute with the ATO.
“More generally, it helps the advisory community (and clients) understand where advice stands relative to the market, which helps in achieving that ‘goldilocks’ outcome and also inhibits others from outcompeting by taking risky positions, with that risk not necessarily communicated to clients. It also helps you counter ‘barbecue advice’.”
Improving the tax profession experience
Mr Hirschhorn said the ATO recognised the important role accountants play in the tax system, and was working on a tax and BAS agent strategy.
This would focus on how the tax profession and the ATO could work together to protect and improve the tax, super and registry systems, now and into the future.
The ATO strategy was focused on protecting the high levels of engagement and integrity of the system and safeguarding the security of data and the digital environment the tax profession operates in.
Mr Hirschhorn said it would also look to find ways to improve the tax performance of clients, increasing the community’s trust and confidence in the system.
This would build on the sustainability of professional practices and improve business performance and level the playing field.
“We recognise that there is no one size fits all approach to working with the tax profession as your experiences are as varied as the clients you deal with,” Mr Hirschhorn said.
“The feedback we hear from you ranges from policy implementation to little IT niggles that would make your everyday working life easier. Please feed your ideas through the CPA, whose representatives sit on our working groups and stewardship groups.
“I can’t guarantee you that we will fix everything. I can commit to addressing those things that will deliver the greatest improvement to performance of the tax system.”