Pressure points simmer in the ATO lodgment system

This article was current at the time of publication.

Many Australian tax practitioners are under unprecedented strain as they rush to complete and lodge client returns on time to avoid late lodgment penalties.

It’s a situation exacerbated by COVID-19 with flow-on impacts on individuals and businesses combined with a recent string of natural disasters including floods, bushfires and droughts.

Practitioners – struggling under constantly increasing workloads – have called on the Australian Taxation Office (ATO) to exercise more understanding and flexibility.

Recognising the issues, the ATO has established the Lodgment Program Review working group, which includes CPA Australia, “to identify potential issues, irritants, gaps and opportunities to improve the administration of the existing lodgment program”.

“We have heard firsthand and seen through our client contact areas the pressures on agents and their clients,” reveals ATO Assistant Commissioner, Tina Ford.

Ford says these pressures have affected tax professionals’ business and personal lives, health, mental wellbeing and their ability to support clients with lodgment obligations.

Rise in late lodgments

“Whilst the intent of the lodgment program is to encourage progressive lodgment of returns to ensure agents can manage their clients’ returns over 12 months, we have observed that prior to and through COVID-19, there has been an increasing reliance on the deferrals service,” she notes.

The focus of the review is to confirm if the supported lodgment program remains relevant and the respective concessional due dates still support progressive agent lodgments.

Among other things, the working group, which includes tax practitioners and the ATO, is examining the role of the 85 per cent on-time lodgment performance measure in the context of the lodgment program.

The working group will identify opportunities and weaknesses and make recommendations for the ATO’s consideration.

Lack of flexibility

CPA Australia’s submission cites a range of issues  affecting tax practitioners.

First, it acknowledges that the lodgment program does seek to spread lodgment obligations throughout the year and that there is little room to adjust. 

The submission states: “While a number of dates and obligations have been identified as specific pressure points, the underlying issue remains the lack of flexibility and ability to self-manage lodgments when pressures become apparent.

“Tax practitioners have consistently told us that they aim to manage their clients’ lodgments effectively and it is in their business interests to do so. Therefore, on the occasions when they require additional time, they wish to do this in the most efficient manner and as independently of the ATO as possible.”

Practitioner concerns

Danny Lustig CPA, a partner at Lowe Lippmann, expresses two specific concerns.

“The standard date for individuals to lodge their tax return each year is 15 May,” Lustig says. “Provided you lodge by that date, you’re required to then pay tax if you’re owing any tax up until 5 June.

“However, if taxpayers lodge their tax returns early – before the middle of February – the ATO brings forward the payment date and taxpayers are then required to pay their tax by 22 March.

“I know of no other organisation in Australia – or overseas, for that matter – that penalises somebody for complying with their obligations. It is outrageous.

“Quite simply, the tax office can fix that with the stroke of the pen and say the standard payment date is 5 June for individuals, regardless of when tax returns are lodged.”

Lustig says the second key concern involves companies and individuals, where the year before they’ve received a tax payable amount of $20,000 or more.

In the next tax year, their lodgment date is brought forward from 15 May to 31 March, despite having met their previous tax obligations.

“There are usually two reasons why a client has a tax bill of $20,000 or more the previous year,” Lustig says.

“The first possible reason is that they’ve had a capital gains event, such as selling a property or a parcel of shares. When you do the tax return the tax office knows it’s a capital gain and therefore one-off in nature.

“The tax office also knows not to charge PAYG in advance for those taxpayers because they understand capital gains are generally one-off.”

Lustig says yet another reason for owing $20,000 or more could be an increase in income, however, in the next financial year, the taxpayer would be up-to-date because they would be making quarterly PAYG tax instalments to the ATO.

“Therefore, I can see no valid explanation or understanding why those taxpayers need to have an earlier lodgment date of 31 March rather than the standard 15 May lodgment.”

Workload pressures

Tax and accounting practitioner Isaac Gnieslaw FCPA points out that he is working excessive hours to try and keep up with his workload.

“I received a letter from the ATO on 1 February giving one of my clients a month to lodge their tax return to avoid penalties,” Gnieslaw says.

“The client came back to me weeks later with information on what needed to be claimed, and we were flat out doing BAS statements and end of the month. Then we were getting other penalty reminder notices to lodge late tax returns on top of that.

“If you’re doing all of the late returns you don’t have time to do – all the returns due by 15 May –  they’re all going to be late. Your clients get penalised, but it’s not their fault.”

CPA Australia’s Senior Manager Tax Policy, Elinor Kasipidis, says it’s important the ATO takes a good look at the structure of the lodgment program to better understand how practitioners operate.

“We really want to make sure that tax agents are considered as partners in tax administration and that the ATO will work together with them for a system that is tailored to help them perform,” she emphasises.