This is a short historical background to the increasing non- or late payment of tax mainly by small businesses – owing over $33 billion of the $45 billion of collectable debt owed by all businesses – and how an opportunity to address this was, like most significant tax reform in Australia, rejected.
The misuse by directors of tax moneys withheld from employee wages by way of delayed remittance to the ATO in order to provide a cash flow buffer has been severely criticised and penalised by the courts for years – they are “trust moneys which do not belong to the company” which if not paid show “a serious lack of commercial morality”: Cullen v CAC 1988; he “arranged to pay out local creditors to retain their goodwill for a successor company while leaving $121,350 owing in taxes”: Culley v ASIC 2009.
On the law side, the recovery options were limited, applying only after the event. It was up against the accounting side, with the practice of real time tax moneys continuing to be used for cash flow for under-capitalised companies.
It was reported in 2016 that Australia
“[stood] out internationally as having some of the longest lag times between employees being paid and taxes being remitted to the Government” and that “this may be a contributing factor to the significant collectable debt owed by businesses”.**
Single touch payroll
Single touch payroll was a proposed regime to address that, by requiring businesses to not only report but also to pay, real-time, on a quarterly basis. That would have imposed some financial rigour by way of weaning businesses off the use of money that was not the company’s – money that often also concealed the insolvency of the business.
Despite that, and the impact on collectable tax debt, the then government backed down, announcing on 10 June 2015 that it recognised the “cash-flow implications for business of real time payments”, and that it would only require voluntary payments. In other words, those implications were that businesses could continue to not pay, perhaps at all, employee tax moneys withheld, to support their cash flow.
Submissions to government supported this backdown, including those of the accountants – both IPA and CAANZ,
“the main concern amongst chartered accountants [being] the proposal for PAYG withheld and super to be paid by businesses more frequently”,
although both said that if the payment timeframes were to change, businesses would need an adequate adjustment period.
Payment timeframes weren’t changed. Meanwhile, in 2023, the ATO’s unpaid debt is rising, the ATO is busy winding up to little effect and many insolvent businesses are still continuing to trade.
More background, and my 2016 perspective, can be found here: Single touch payroll – disrupting the way things have been done – Murrays Legal
Well done all.
** See the Explanatory Memorandum to the Budget Savings (sic) (Omnibus) Bill 2016, circulated by authority of the Treasurer, the Hon Scott Morrison MP.
