Six ways the taxman cometh

Buried in the mini budget numbers is a massive tax attack on Australian small and medium business, executives and superannuation. Everyone needs to take a second look at what they are doing and be prepared for the onslaught.

After the announcement I focused on the specific measures rather than the less obvious tax attack (What the MYEFO means to you, October 22).

The tax commissioner reckons he can rip $2 billion from business and superannuation schemes over the next four years. Wayne Swan has allocated an expenditure of $390million to harvest the money.

So where will the commissioner spend that $390million? Without any inside knowledge, I am going to attempt to name the six targets likely to be attacked by the Australian tax office.

Wayne Swan mentions criminal activities as a target but the Crime Commission is receiving only $2.4 million of the $390 million so that's a smokescreen. We can assume its business and superannuation that will be the main targets. And remember he is draining business ability (particularly smaller enterprises) to fight by taking $8 billion out of the business system via tax payment acceleration.

It's a two pronged, pincer attack.

In the last decade or so the taxation commissioner has been targeting big companies and he has had some wins. But large companies are now smarter and use top legal and tax advice with every step they make. They have the money to fight the commissioner in court and often win.

Accordingly they are getting too hard to go after and so they are also not in my top six tax targets.

It is small business, executives and superannuation that will be attacked. Here people don't have the money to fight the tax commissioner in the courts so they are easy pickings, although the multitude of individuals lifts the costs. That's why Swan has allocated $390million to harvest the cash.

Here are my list of top targets but I invite readers to add to them:

-- Areas where self managed superannuation funds get tangled up with the small enterprises owned by the fund's beneficiaries or the beneficiaries personal affairs. If you buy a house in your superannuation fund you must not be a tenant and must not have sold the dwelling to the fund. Great care needs to be taken when super funds own a business premise and rent it to the small enterprise owned by the fund beneficiaries. There are plenty of legitimate practices available but be careful, it's a key target.

-- The Commissioner appears to want to make people who are contractors, employees. This strikes at the heart of what is happening in Australia where more and more people are contracting. He will challenge contract status. Do your homework and be confident in your arrangement. One of his current stunts is to try and prevent a tax deduction for contractors travelling from their home (which is where their business is based) to a remote location -- the commissioner is claiming that it's a tax deduction to travel to work! Such tax office claims are usually a nonsense but the commissioner knows the contractor does not have the money to go to court. Maybe we need to personally tax top public servants when they travel out of Canberra business class. I jest, but seriously this is not about fairness, its about raising tax revenue and independent contractors don't have the money to fight back so they are targets.
The Opposition is planning an ombudsman so small business can defend such attacks without going to court. Until that is introduced the commissioner will try to harvest independent contractors cash. Contractors should be aware of the risk and tailor their contracts to make it harder for them to be attacked.

-- We embarked on a paper chase by making commercial builders record every transaction looking for sham contractors. It increased costs, and made the unions happy, but raised little money because there were few sham contractors in commercial building. However, in the housing and house repair industries while there is some sham contracting, there is an extensive cash economy. With $390million in his pocket the commissioner can attack.


-- Financial planners are always suggesting schemes to lower executive tax via salary sacrifice. In a separate attack extra fringe benefits tax is being raised on salary sacrifice arrangements involving employers' products. I think that attack may be widened. Employees and employers will need to be smarter.

-- The business of taking your spouse to conferences and then going on a holiday is a sitting duck. The only reason it has not been attacked to date is that it is a favourite tax avoidance scheme of public servants. But public servants are usually careful. Others need to follow that example or they will be attacked.

-- The easy pickings are from those who do not put in tax returns. The tax commissioner is now much tougher. Liberal Shadow small business minister Bruce Billson says, "small business insolvencies instigated by the tax office are up 116 per cent and the tax commissioner has warned that the ATO will be even harder this financial year, despite small businesses already facing difficult trading conditions, poor confidence and the impact of the carbon tax.
"The Tax Inspector General has already warned that more than 5,800 small businesses targeted by the ATO were forced into simply paying default tax assessments because they couldn't afford to fight or correct the ATO's false assertions.

"The ATO has a job to do but struggling small businesses who are trying to make it through a tough trading period don't need the Gillard government telling the ATO to ‘go the jugular' to extract every last cent and drive viable businesses to the wall”. Billson is right but if and when Liberals get to power they will also want to raise cash.

However their targets will be different.