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Embedding ATO advice and guidance into software solutions will detect and correct errors with Division 7A ahead of lodgment, says the Tax Office.
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ATO explores ‘digitised guidance’ to combat Division 7A issues
18 April 2024
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The ATO plans to embed its public advice and guidance into the software solutions used by accountants and small businesses to minimise the number of compliance issues arising from Division 7A obligations.
In a recent ATO webinar, ATO assistant commissioner Michael Morton said the ATO remains focused on its digital-first approach for small businesses which will minimise errors and promote real-time reporting and payment.
“We are exploring whether embedding ATO public advice and guidance into digital software solutions on simple loans made to private company shareholders and associates can support small business to detect and correct potential issues in complying with Division 7A obligations before they lodge,” said Morton.
“We are also exploring how to modernise pay-as-you-go instalments (PAYGI), through testing whether accounting systems can be leveraged to calculate PAYGI that better reflect the current performance of a small business.”
ATO director of the Improve Small Business Tax Performance Team, Kelly Norwood, said through these new initiatives, the ATO is aiming to improve compliance with Division 7A obligations.
“Division 7A is a complex part of tax law. It’s overlooked and misunderstood by business operators and by the registered tax agent community as well,” she said, speaking in the same webinar.
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Norwood noted that Division 7A is an integrity measure to prevent company profits from being distributed as tax-free or tax-reduced simple loans to private company shareholders and associates.
“With this proof of concept, we're re-imagining how guidance materials can be used and the possibility of digitised guidance to small businesses and their agents occurring well before lodgement,” she said.
“With this particular scenario, we are currently exploring possible pathways to sharing the Division 7A web calculator on ato.gov. Now, this might be through either a lightweight application programming interface or an API, or it might be our digital service provider community.
“What this would do is allow the software users to have more certainty when they're managing Division 7A loan repayments correctly, and it could keep them in the channel rather than leaving the software that they use to come to our website to check those calculations.”
Norwood said the ATO is also exploring opportunities to incorporate nudge messaging based on ATO-approved public advice and guidance into software.
The nudge messaging would be aligned with tax events to help keep small businesses on track.
“We will look to work with the tax agent or tax professional and BAS agent community on what could be the other opportunities to help our clients where they might be going off track, where it's complex and we can leverage the systems that they're using to get them advice at the right time,” said Norwood.
The ATO is also continuing to explore the possibility of a BAS-free future or push-BAS future, an initiative flagged by former commissioner of taxation Chris Jordan last year.
“We are using this challenge of ‘digital first’ to imagine what our future state could look like. Two possibilities we are currently imagining for small businesses are a BAS-free future or a push BAS future,” said Morton.
To make this happen, Morton said the ATO would need to be able to harness data in natural business systems and provide greater certainty and assurance through natural systems to help small businesses get it right the first time.
The ATO will also need to provide meaningful macro data back out into the natural systems to support small businesses manage and run their business, he said.
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