An announcement in the 2019 federal budget looks to implement further obligations on Australian Business Number (ABN) holders. This is an expansion of black economy measures which have been implemented over the past few years.
From 1 July 2021, the proposed measure introduces an income tax return obligation for all ABN holders. That is, all ABN holders will be required to lodge their income tax return each year.
Also, from 1 July 2022, the proposed measure introduces an annual confirmation with the Australian Business Register (ABR). All ABN holders will be required to confirm the accuracy of their details with the register.
Income tax return obligation
Currently, there is no requirement for an ABN holder to lodge the entity’s income tax return. Therefore, an enterprise may go many years without lodging details regarding income and expenses with the Australian Taxation Office (ATO). There appears to be no change to the concept that all tax payments will be required to be paid and “squared off” after making lodgements. The problem for regulators, however, lies with matching risky business-to-business transactions with related parties which may go undeclared for many years.
Requiring ABN holders to lodge their income tax returns each year mitigates some of this risk.
Other similar measures
After this announcement, there have been no specifics regarding the punishment for ABN holders for non-lodgement.
A careful look at other black economy measures recently enacted offers some insights towards the potential restrictions around the income tax return obligation. These may include ensuring three of the past four lodgements are lodged on time, as is necessary for government contract tenderers.
However, the announcement specially relates to the lodgement of an income tax return, which is required each year. A strict reading of the announcement may indicate that the ATO is looking to cancel ABN’s if lodgements are not up to date, or late.
Confirmation of accuracy of details
Currently, Australian companies registered with ASIC are required to review the details surrounding the shareholdings and officeholders each year. It can be presumed that a similar type of statement will be required with the ABR should this become law.
Currently, details such as trading names, location and current registrations as displayed on the register. Therefore, entities who are enterprises may be required to make sure any changes to this data is kept up to date, from 1 July 2022.
Risk mitigation steps
Should a proposal such as this become law, it is necessary for entities (and their advisers) to keep a clear line of communication with the ATO. Keeping the regulator in the loop regarding when a future income tax return will be lodged (if late) is imperative in ensuring an ABN is not cancelled.
It may be that an ATO late lodgement notice will come with a requirement to lodge within 28 days, or else the ABN will be cancelled.
A cancelled ABN may throw business processes into chaos. Without an ABN, all business-to-business invoices are required to be withheld at the top marginal rate, which could wreak havoc on an enterprises cash flow situation. So in this case you can contact your tax accountant to discuss regarding this.
Also, there are penalties relating to knowingly making a false and misleading statement. Therefore, by displaying a cancelled ABN, an enterprise leads itself to penalties from the regulator. Penalties for intentional disregard are currently 60 penalty units, or $12,400 per offence.