The Government has announced various measures to improve tax compliance across various aspects of the economy.  The following measures are expected to result in over $1 billion in additional revenue.

Countering fraudulent phoenix activities by company directors

The government has also announced changes seeking to reduce the prevalence of "Phoenix" activity by arming the ATO with some significant additional recovery weapons.  Phoenix activity refers broadly to the practice of collapsing or liquidating a business in one entity, only to recommence the same business in another entity the next day.  The creditors (most usually including the ATO) are left behind in the defunct entity.

The proposed changes, which will seek to become effective from 1 July 2011, are :

1.  Extending the application of Directors Penalty Notices (DPN's) to apply to superannuation guarantee amounts.  DPN is a notice issued to the directors of a company requiring payment of certain taxation liabilities, most notably PAYG deductions, within 21 days.  Failure to pay the amount within that 21 days or place the company into Liquidation or Administration within that time renders the directors liable for a penalty equal to the unpaid tax. 

2.  Personal liability for company directors for unpaid employee superannuation payments.

3.  Prevention of directors or their associates from claiming the benefit of tax withheld unless those amounts have actually been remitted to the ATO. 

4.  Automatic personal liability for certain taxes that remain "unreported" after 3 months of becoming due. 

Whilst these measures may, in our view, have some impact on Phoenix activity, others may also recognise the changes as the Government acting aggressively to stem the level of debt outstanding to it with respect to taxation arrears.  Taxation debt ballooned during the GFC with the ATO struggling to reign in that debt, particularly from the SME sector.  We see the measures as having greater impact in the general collection arena, not solely from the minority of taxpayers who may engage in Phoenix style activity.   The Government estimates that the measures will collect a further $260 million over the next 4 years.

We await with interest the precise wording of the amendments set out in point 4 above, as these measures are likely to have broad ramifications for a number of companies.

Enhanced refund fraud detection and management

The Government has announced that $56.4 million will be provided over four years to the ATO to address a substantial increase in fraudulent tax refund claims. 

This will allow the ATO to develop further intelligence and analytic detection models to prevent instances of over claiming before refunds are issued.

Reporting taxable payments

From 1 July 2012, the Government will require reporting on an annual basis of payments made to contractors in the building and construction industry. 

Additional funding will allow the ATO to undertake data matching, review contractors’ tax liabilities, perform targeted audits and assist with educating the building and construction industry about the new regime and their tax obligations.

Reporting Government grants and payments

The Government will provide $43.3 million over four years to the ATO to enable it to monitor the accurate accounting and taxation of Government grants and payments. 

This will allow the ATO to collect payment information from Government agencies and provide for sophisticated data-matching techniques.

International Compliance

On an international compliance front there are two noteworthy cost savings:

• $2.5m has been cut from the Australian Crime Commission’s Project Wickenby budget
• $12.1m over 4 years has been cut from the AUSTRAC budget – AUSTRAC is the agency that monitors cross border financial transactions and reports to agencies such as the ATO