Beware looming changes to GST collection

Perhaps Scott Morrison and Michaelia Cash don’t fully understand the real aim of the GST legislation. Picture: Chris Kidd
Perhaps Scott Morrison and Michaelia Cash don’t fully understand the real aim of the GST legislation. Picture: Chris Kidd

Without any widespread industry consultation, the Morrison government plans to fundamentally change the GST collection system in Australia and greatly increase the risk of conducting business.

The Housing Industry Association, which represents small builders and suppliers, is one of the few industry bodies to study the new government bill which is due to come before the House of Representatives in a week or two. Not surprisingly it has issued a damning criticism of the government’s plan.

It’s ironic that while the Reserve Bank is trying to increase employment, the Morrison government is greatly increasing the risk of doing business in Australia.

I would like to think that ministers like small business and employment minister Michaelia Cash have not understood the real aim of the bill set to go be before the parliament.

The government wants the directors of all Australian corporations from BHP and Commonwealth Bank to the local plumber to be personally liable for the GST that their company might owe.

This represents a fundamental change to the personal liability of all directors. But the Morrison government wants to go much further and proposes that where the Australian Taxation Office decides that a corporation must provide information that may affect the amount the commissioner refunds, then the ATO can block GST refunds if it is not satisfied with the answer.

This means that if a company fails to answer a question (probably any question) to the satisfaction of the ATO its GST refunds will be frozen. This has the potential to send many honest Australian companies to the wall.

And the same penalty applies to those who fail to lodge a tax return. Sometimes there are good reasons for failing to lodge a tax return. If the bill becomes law the penalty can now end the business.

These are horrendous nationwide penalties that will clearly reduce economic activity when they become known.

We have a prime minister telling Australians to “have a go” and be entrepreneurial and yet in this area his government’s actions are the reverse of what he is preaching.

Again (like Michaelia Cash) I would like to think that Scott Morrison does not understand what his government is actually doing.

The enormous new ATO power increase is concealed in an act that claims to be aimed at phoenix companies where tax liabilities are avoided by the trashing of companies.

Any action the government takes against phoenix companies will be applauded by the vast majority of people in Australia.

But this bill, called “The Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019” is not limited to phoenix companies.

Indeed, the HIA point out it does not even bother to define phoenix companies. If the ATO was a model litigant and could be trusted to only use these powers on phoenix companies then we might look the other way.

But the judiciary has warned the parliament that the ATO is not model litigant and that has been confirmed by media revelations. Indeed, if the ATO planned to confine the use of these powers to phoenix companies it would have made sure that is what the act did. By not limiting the application to phoenix companies the ATO is signalling its real intentions.

It’s true that the parliament has given the ATO power to make directors personally liable when PAYE tax and superannuation are not paid. But these are in some ways trust moneys.

GST is a complex general tax and indeed GST compliance is not easy, with many obscure issues.

MYOB has estimated that the time lost to GST compliance for the approximate two million small businesses in Australia equates to a productivity cost of $13.5 billion.

Now if that enormous work small business must undertake to conform does not satisfy the ATO then the directors may lose their houses. Big companies have the money to take the ATO to the courts. Small business usually can’t afford it.

It’s ironic that the minister representing the ATO, Michael Sukkar, is also minister for housing where GST compliance is often the most complex, which is why the HIA is alarmed.

Ironically, Sukkar is presenting a second taxation bill which aims to enable the tax office to inform credit bureaus that a person or company owes money to the ATO. Just as it is important that we reduce phoenix companies so credit agencies must know when a person has a legitimate liability to the ATO, otherwise the credit agencies can’t do their job.

But in sharp contrast to the phoenix legislation there are a large number of clauses (including an examination of the situation by the inspector general of tax) that make sure innocent enterprises are not incorrectly branded as having a tax liability. I am sure there will be details that can be improved but the thrust is excellent.

Michael Sukkar should give the phoenix act to the person who drafted the credit bill, with the instruction to define phoenix activity and confine the bill to that activity. Then it will be supported be the vast majority of the community.

If the Coalition can’t get its act together, we have to hope that the ALP and the crossbenchers represent the nation.