Late tax return lodgment could result in ABN cancellation

On 1 November 2022, Treasury commenced consultation on proposed amendments that would provide additional grounds for the cancellation of an entity’s Australian Business Number (ABN). 

Broadly, the proposed amendments to the A New Tax System (Australian Business Number) Act 1999 would permit the Registrar of the Australian Business Register to cancel an entity’s ABN in certain circumstances, including where an entity fails to lodge income tax returns in relation to two or more income years, whether or not those income years are consecutive.

The proposed amendments represent the revival of a policy announced by the former Government as part of the 2019-20 Budget that was aimed to counteract black economy behaviour by ensuring ABNs are not held inappropriately.

The proposed​ amendments would apply to income tax returns in relation to income years commencing on or after 1 July 2022. 

Meaning the earliest date on which an entity’s ABN could be cancelled thereunder would be in the second half of 2024.

The cancellation of an entity’s ABN can have significant consequences, including the attraction of so-called ‘no ABN withholding’.

Pursuant to section 12-190 of Schedule 1 to the Taxation Administration Act 1953, if a supplier fails to provide its ABN and the total payment for goods or services exceeds $82.50, the payer must withhold 47% of the invoice amount and remit the amount withheld to the ATO.

Under the proposed amendments, where the Registrar cancels an entity’s ABN, it will only reinstate it where it is satisfied that the relevant outstanding tax returns have been lodged and/or the entity has notified the Registrar that it still requires its ABN and confirms the currency of information held thereby.

This means that, until such time as the supplier’s delinquency is remediated, payers will be precluded from claiming input tax credits on relevant payments, and suppliers will be unable to recover amounts withheld.

Additionally, payers will be subject to onerous administrative requirements, including the provision of a payment summary to the supplier that sets out the amount(s) withheld, notification to the ATO of amounts withheld via their BAS or IAS, and annual reporting.

Suppliers will only be able to recover amounts withheld through their annual income tax return process, once their ABN has been reinstated. 

The Exposure Draft, at this stage, does not reference other Australian tax filing obligations, such as those related to FBT or GST. However, this may change following the consultation period.

If your entity has outstanding tax returns that you would like to discuss, please contact your local tax expert.