Tech funding boost helps ATO take a closer look at business

Improvements to the ATO’s computer system could fundamentally change the relationship businesses have with the taxman. Here’s what you should know, says BDO tax expert.

BDO tax partner Mark Molesworth.

The recent federal election has meant that one of the high impact tax announcements made in the March budget has been almost completely overlooked. Business taxpayers would do well to pay heed, because it could fundamentally change their relationship with the tax authorities.

The Australian Taxation Office (ATO) has been promised a small amount of money to improve its computer systems to allow for three major changes in the way that it collects and uses business data. All three have the effect of businesses’ affairs being far more transparent to the ATO and the state revenue authorities. The changes are projected to come into effect from 1 January 2024.

Under the first announcement, businesses will be able to have their tax instalments calculated by reference to their current year profitability. At present businesses pay tax instalments based solely on gross income, not profit. The change will make businesses’ income and expenses available to the ATO in real time.

The second announcement relates to the taxable payments reporting system (TPRS). The TPRS requires buyers of goods and services from contractors in certain industries (such as construction, cleaning, information technology, security and transport) to report their payments by the recipient’s ABN annually. In future businesses will automatically lodge from their accounting software at the same times as their GST lodgements.

Finally, sharing of single touch payroll data with the state tax authorities will be made electronic and automatic. Single touch payroll requires employers to report wages data on an employee-by-employee basis to the ATO at the time of each pay run. Making it available to state authorities is intended to reduce the number of returns a business has to lodge.

The impact of these announcements will be to improve efficiency for businesses, as data is submitted automatically and used multiple times.

In the not-too-distant future, there is every reason to think that real time reporting on all aspects of businesses’ tax affairs, directly from business information systems to the ATO, will be the norm; making it easy to identify any outliers. At that point, will tax returns even be necessary?

Mark Molesworth is a tax partner in BDO in Australia’s Brisbane office.