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The ATO’s pursuit of $850 million in dodgy refunds will leave some businesses with a cash-flow crisis.
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GST fraud crackdown ‘will punish legitimate claims’
20 May 2022
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10 minute read
The ATO’s crackdown on GST fraud will hit legitimate businesses that rely on refunds for cash flow, said Tony Greco of the IPA.
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The organisation’s general manager of technical policy said the extra validation steps flagged by the Tax Office meant businesses could be hit by lengthy delays.
“It’s a fine balancing act for the regulator to sniff out fraudulent refunds from legitimate ones,” he said.
“In the early days of GST this balancing act created lengthily delays in businesses receiving refunds, causing significant cashflow consequences.
“If the ATO cranks up the integrity measures, there is a danger that delays will return putting pressure on cashflows.”
Tighter controls around ABN and GST registration were announced earlier this month by the ATO as it pursues $850 million in fraudulent claims.
Mr Greco said the fraudsters were exploiting the trust necessary for the system to work effectively.
“When GST was introduced, we all knew the quarterly BAS return was akin to an open chequebook or money pot given that no one uses cheques anymore,” he said. “Claim credits and whamo! Money drops into one’s bank account.
“The quarterly BAS system operates with some level of trust that the lodger of the return is fully compliant with the GST system and returns will be processed as lodged. Fraudulent returns can take many months or years to be unravelled.
“It looks like people are exploiting this opportunity. It’s a shame, as legitimate business will need to wait longer for returns as more are scrutinised to ensure fraudulent returns are weeded out of the system.”
The ATO said the fraud attempts involved individuals inventing fake businesses, lodging fraudulent ABN applications and then submitting fake BAS statements to gain a false GST refund.
It said social media advertising had fuelled the scam and it had already stopped $770 million in payments from being issued.
But it acknowledged that delays were likely.
“We have been working with digital platforms to shut down this advertising and stop further fraudulent attempts,” the ATO said. “Legitimate businesses may face extra steps to receive their refunds as extra controls are put in place.”
Mr Grego said many companies relied on the claims to be processed without hold-ups.
“Many businesses operate with legitimate refunds as a normal occurrence, for example, where they sell predominantly GST-free sales and claim back GST credits on all the supplies they procure in running the business,” he said.
“Then there are businesses that can have a substantial refund when they purchase a large capital outlay that puts them in a GST refund scenario.
“Similarly, timing can produce irregular situations where a business is in a refund situation for some time and then when lumpy sales occur there is a GST liability in the future.
“Also new start-ups that incur outlays for months or years before there are GST liabilities.”
He said accountants and bookkeepers should intervene to help navigate the extra compliance steps.
“Intermediaries such as BAS or tax agents can assist their clients in proactively managing the process by stepping in to validate returns with the ATO in case their clients return get caught up in the tighter control,” he said.
“We want to remind our members to communicate with their clients to help in proactively manage this tightening process in case [it] leads to lengthy delays.”
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