GST liability rules will decimate small business

 reported in The Australian on
The late Michael Andrew was global CEO of KPMG. Picture: Renee Nowytarger
The late Michael Andrew was global CEO of KPMG. Picture: Renee Nowytarger

It’s really important for Australia that we don’t tarnish the magnificent legacy of Michael Andrew — one of the few Australians to become the head of a major global enterprise.

In 2011 he became global CEO and chair of KPMG but in Australia he is best known for being a passionate advocate for a fairer and more transparent taxation system. He died In June after a long battle with cancer.

Over the years I had many discussions with Michael and so I was delighted in December 2016 that he was appointed head of the black economy taskforce, whose tasks would encompass tackling one of our national scandals: illegal phoenix companies.

Unfortunately, we are now seeing legislation emerge that does not encompass the Andrew principles of fairness and transparency, yet is being justified via his good name. We all want phoenix activity ended and the proposed legislation starts by widening the power of ASIC to prosecute. It’s good legislation because it transparently defines ASIC’s powers — exactly what Michael would have wanted.

But then there is a second part that in essence gives the Australian Taxation Office power to declare that the alleged GST debt of a company is the personal liability of the directors.

It covers all companies, not just those involved in phoenix activities. Its proponents say that director liability for employees’ entitlements should apply to GST. In both cases the money is being collected in trust.

On the face if it, that’s a reasonable argument. But in many areas of industry calculation of GST is much more complex than employee entitlements and is more akin to research.

Complexity arises in areas like exports, imports, housing and land development, where there are many legitimate differences between the ATO’s calculations and those of honest traders.

The ATO is able to estimate employee entitlements but it will not be able to duplicate the process for GST over swathes of Australian industry. As we saw with research, small business usually does not have the money to fight in the courts, so any GST legislation must be linked to the small business tax appeals tribunal.

It is neither fair nor transparent to suddenly make directors of all companies personally liable for ATO estimated GST bills as part of phoenix company legislation.

If we as a community believe that GST liabilities of companies should be the personal liability of directors, then we need separate legislation that protects exporters, importers, builders, developers and other industries where GST is not always clear and can’t be estimated by the ATO.

And such massive measures like making all directors personally liable for GST should not be just plonked into phoenix company legislation. There must be separate legislation for what is a major change to Australian taxation. And it comes at a time when the internet is opening up new export markets for talented small enterprises.

Many years ago Australia had a blossoming innovative research sector in smaller industries which was severely damaged when the ATO was given unrestrained powers along the lines as those that proposed for GST.

In research one section of government would approve research and hand out grants and then the Australian Taxation Office would effectively demand the money back after it was spent. To make matters worse, ATO would add hideous penalties to its base estimates, ensuring that as many of our innovators as possible went to the wall.

It will do the same with its GST estimates.

I encountered the ATO agenda back in 2017, first in the food industry and then when the ATO savagely destroyed one of Australia’s top new technology pioneers, Helen Petaia, whose world-beating technology could not be developed because of ATO actions. She was forced to sell her house.

At the time I pleaded with the then minister for industry, innovation and science Arthur Sinodinos to instruct AusIndustry to warn small businesses that accepting government research grants was high risk, because the ATO had become the judge of what was Australian research, and was likely to effectively ask for the government grant to be returned after adding interest and penalties.

Arthur and his successors did not accept that advice and some $200 million worth if ATO carnage decimated the research being conducted by small Australian innovators. Exactly the same thing will happen in GST and the ATO will again use its power to decimate small honest enterprises that have nothing to do with phoenix activities. But whereas the innovators never came together to fight — most left Australia in disgust — the building developers, exporters and importers facing potential bankruptcy will take the fight up to the government at the next election. This is Coalition base support.

The ALP has its fingers crossed that the phoenix legislation will be passed.

It’s ironic that at as the GST bill comes for before parliament, at last week’s Council of Small Business organisations summit the taxation commissioner Chris Jordan came face-to-face with an Small Business Family Ombudsman Kate Carnell, who was clearly appalled at what happened in research.

She pulled no punches and told the truth about the damage the ATO had caused to Australian innovation and the lives of innovators. Jordan was unable to defend the indefensible and said he was keen for the ATO to leave the research area. If only he had said that years earlier Australian research and innovation would now be much more vibrant. Clearly, it’s AusIndustry that should police whether its research grants have been properly spent in accordance with its instructions.

In the case of GST the destruction of businesses and personal lives will be undertaken in the name of Michael Andrew. It’s not fair.