Understanding the shift to monthly reporting for non-compliant businesses
The Australian Taxation Office (ATO) is set to implement a significant change affecting small businesses with a history of non-compliance with respect to taxation obligations. Effective from 1 April 2025, the ATO will transition non-compliant businesses (that report their Goods and Services Tax (GST) on a quarterly basis) from quarterly to monthly GST reporting in accordance with section 27-15(1)(c) of the A New Tax System (Goods and Service Tax) Act 1999.
The Commissioner of Taxation will likely consider the following examples demonstrate a history of non-compliance (at least):
- Non payment, or late payment, of statutory obligations;
- Non-lodgement or late lodgement of GST and Pay as You Go Withholding (PAYGW);
- Incorrect reporting of taxation obligations
Any businesses affected by the change will be notified by the ATO in writing.
The ATO’s decision is grounded in the belief that more frequent reporting can help businesses stay on top of their obligations and prevent the accumulation of unmanageable tax debts. By aligning reporting more closely with regular business processes, the ATO anticipates that businesses will maintain better financial records and improve overall compliance.
For small businesses already experiencing financial difficulties, it is prudent that affected businesses seek professional advice to explore available options.
How this Affects Business Owners
- The Good: For some businesses, more frequent reporting may assist with cash flow management by encouraging regular tracking of financial obligations and avoiding large quarterly tax liabilities.
- The Bad: Increased reporting frequency may result in additional compliance costs, including more frequent lodgement requirements and potential administrative burdens.
- The Ugly: For businesses already struggling with cash flow issues, the shift to monthly reporting could exacerbate financial difficulties by requiring earlier payment of GST, leaving less time to manage short-term cash flow constraints.
Safe Harbour Protections and Compliance Risks
For directors relying on safe harbour protections, ensuring compliance with taxation obligations is a critical factor in maintaining eligibility. A failure to meet monthly reporting requirements could undermine a director’s ability to demonstrate they took reasonable steps to improve the company’s financial position, potentially exposing them to personal liability. Directors should ensure they have appropriate governance structures in place to meet their reporting obligations and seek advice where necessary.
Increased Compliance Burden for Accountants
Accountants and tax agents may see an increased workload due to more frequent GST lodgements for affected clients. This change will likely necessitate greater engagement with clients, more frequent reconciliations, and potentially higher compliance fees. Additionally, accountants may need to proactively advise clients on strategies to manage the transition, including improved record-keeping practices and cash flow forecasting.
Considerations for Insolvency Practitioners
When assessing whether a company has traded whilst insolvent, liquidators will often consider a company’s compliance history relating to its taxation obligations (amongst other things).
Should a company be moved to monthly reporting by the ATO, a liquidator may be able to evidence that such a change, in combination with multiple other factors, indicates a company was trading whilst insolvent.
Should a director receive such a notice, it may also serve as an indication that they were, or should have been, aware of the company’s financial position, which could be relevant in assessing their actions in relation to any potential insolvent trading claim raised by a liquidator.
Impact on Small Business Restructuring Appointments
The transition to monthly reporting could influence small business restructuring appointments by serving as an early warning sign of financial distress. If a business is moved to monthly reporting, directors should consider whether the business is at risk of insolvency and seek professional restructuring advice. Early intervention through restructuring may provide a pathway to recovery and prevent further financial deterioration.
Next Steps for Affected Businesses
Businesses that receive this notice should consult their accountant to understand the implications and explore available options to manage their tax obligations effectively. Seeking professional advice early can help mitigate risks, improve compliance, and identify strategies to navigate potential financial challenges.
Article written by Victor Mackintosh (Senior Accountant) – Brisbane