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The ATO says you owe $$$$. How true is this ATO claim?

Tuesday, February 13, 2018

The Australian Taxation Office pretty consistently claims that small business people owe around 60 per cent of tax debts, amounting to some $12 billion or more a year. This figure is frequently trotted out to portray small business people as tax dodgers and the ATO as the 'defender' of the community. Well, maybe!

There's no doubt that lots of small business people owe lots of tax. But let's get fact-driven. In the UK, campaigners claiming that massive tax dodging was occurring have been embarrassed when analysis revealed that the actual debt was less than a third of that claimed.

And have a look at what an actual 'tax debt' in Australia looks like.
  • If someone actually owes, say, $10,000 in tax, the ATO can
  • add up to 90% for penalties, which means another $9,000 and then
  • charge a non-commercial 11% interest rate, adding another $2,100 in the first year ($19,000 x 11%)
Suddenly, a $10,000 tax debt has spiralled to $21,100—more than double the tax the person actually owes.

And any 'debt' to the ATO is not 'proven' in the normal sense. The ATO has the power to allege a tax debt and require it to be paid. The ATO does not have to prove to any independent party (for example, the courts) that the debt is real before requiring payment. That is, what the ATO claims is owed to them is only an allegation and not necessarily the truth. We know this because of our experiences helping small business people deal with ATO bullying.

With just five very normal small business people we have been assisting, the ATO claimed a total of $1,676,000 of tax debt. After between two and five years of battles, the ATO admitted in each case that no debt existed. The ATO was at fault in each case. The Rod Douglass case is just one example.

So what do small business people actually owe in tax debts? The facts and our experience suggest that the true figure is massively lower than that which the ATO claims.

And there's a big lesson here for self-employed, small business people. If the ATO contacts you for an audit, be very careful. Be very suspicious.

That's why we've created our Protected Member insurance which provides $50,000 of professional assistance if you're faced with a tax audit. More information here and here.  You can join here.
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