2030, The Year When Tax Will Just Happen Through Digital Transformation
By 2030, tax will just happen. For many in business, tax just happening sounds like a dream come true. According to the ATO Commissioner Chris Jordan, there is a future where “tax just happens.” The timeline for this ambitious goal is a mere 8 years - 2030 is the year flagged for this to become a reality.
What does a future where ‘’tax just happens’’ mean?
For the most part, our current system operates in a way where there can be many months between the time a transaction event occurs (receipt of income or payment of an expense), the reporting of the event happens (lodgement of BAS, IAS or income tax return) and then the tax (income tax, PAYG, GST etc) is finally paid. By 2030, the aim is to simultaneously have the transaction event and tax payment happen. The only choice businesses will have is to embrace digital technologies to comply with the new regime.
Why is this digital transformation taking place?
In the words of Chris Jordan, “...where tax reporting occurs sometime after the taxable event, and payment happens even later again, this affects certainty and is burdensome for businesses and tax agents.”
I don’t think anyone can argue that the current tax system is burdensome! It is the word “certainty” that is the most interesting in the commissioner’s statement, though. The “certainty” to which he refers is the certainty of the government to collect tax revenue. Having the transaction event, reporting event and tax payment simultaneously will prevent businesses from using the ATO as a source of credit to fund their operations.
What is the current state of play?
We are currently at the beginning of this digital transformation, where, for the most part, there is a significant time delay from the transaction event to the eventual payment of tax. The exception recently emerged was the introduction of single touch payroll and eInvoicing.
Single Touch Payroll (STP)
We are at the beginning of phase 2 of the STP rollout, which is a 3 phase project. STP reporting is now mandatory for all businesses with employees, including companies where the only employee is the director or shareholder.
STP sees the reporting of wages/salaries/director’s fees/bonuses, PAYG withholding and super to the ATO at the time wages are processed and paid, with the tax paid 4 to 8 weeks after the end of a quarter. By 2030, the tax will be paid at the same time wages etc are paid.
eInvoicing
eInvoicing is a recently released system that allows the automated digital exchange of invoice information between a supplier’s and a buyer’s software system through a secure network (it isn’t a PDF invoice attached to an email sent via your accounting software). This is available across a range of software providers, and you don’t need to use the same software as your supplier/customer to use it.
The benefits of using eInvoicing include:
Reduced payment times as invoices are pushed straight through to your customers accounting system, reducing invoice processing times.
Reduced invoice processing costs. Processing costs are currently $27 to $30 per invoice, which is expected to decrease to under $10 per invoice with the implementation of eInvoicing.
Eliminates the risk of invoice fraud, where a cyber criminal hacks your email and changes the bank account details on your invoice to divert the funds to their account.
While the ATO is responsible for the rollout of eInvoicing, they don’t have access to any of the information shared through the eInvoicing network.
Some gentle encouragement
To encourage businesses to adopt technology, the 2022-23 Federal Budget announced the small business technology investment boost. Businesses with a turnover of less than $50 million can deduct an additional 20 percent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as payment devices, cyber security systems or subscriptions to cloud based services. A cap of $100,000 per year will apply. This will apply for all eligible expenditures from 29 March 2022 until 30 June 2023.
An example of how this works would be: Digitalco Pty Ltd spends $900 during the 2023 financial year for their Xero cloud based subscription service. When they lodge their tax return, they will receive a deduction of $900, which translates to a tax benefit of $270 ($900 x 120% x 25% tax). So the out-of-pocket cost of the Xero subscription is not $900, but $630.
The small business technology boost, at the time of writing, is before parliament and is not yet law. We will keep our fingers on the pulse and share more as this moves through parliament.
To find out what tax just happening means for your business, read our blog When tax ‘’just happens’’. What does this mean for business?
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Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.