Schedule 1 to the bill amends the A New Tax System (Australian Business Number) Act 1999 (ABN Act) to provide that the Registrar may cancel a person’s registration in the Australian Business Register where they fail to lodge returns for two or more income years and the returns remain outstanding.

Under the proposed law, their registration will also be cancelled where a person fails to confirm the accuracy of their details held by the Registrar in a 12-month period together with confirmation that their ABN is still required.

In a submission to Treasury on the draft bill, the Tax Institute noted that clause(d) of the draft bill allows for the cancellation of a taxpayer’s ABN if they have not lodged income tax returns for two or more income years.

“We consider that the current threshold of two years is unreasonable, potentially resulting in unfair outcomes for taxpayers,” the submission stated.

“The threshold would be more equitable if it was raised to a minimum of three or more years where a tax return is not lodged.”

The Tax Institute explained in the submission that taxpayers may be delayed in lodging their tax returns for a number of reasons “that are not intentional steps to avoid their taxation obligations”.

“For example, personal circumstances [such as] health of family matters or deteriorating business conditions are likely to result in taxpayers prioritising these aspects over most of their obligations in the short term. This is a result of the limited resources these taxpayers have available and the need to prioritise the urgent personal circumstances or survival of their business,” the submission stated.

“These factors are likely to be most relevant to sole trades and small or medium business entities.”

The submission also pointed out that if taxpayers are on a tax agent’s list, they will generally have access to the tax agent’s lodgment concession allowing an extension of the lodgment date and payment date of their current year tax return.

“In some cases, if these taxpayers have an outstanding tax return due to unforeseen circumstances, they may only have a period between four and seven months until the second return is due for lodgment in October of the following year,” it stated.

“This can be an unreasonably short period of time to rectify and lodge income tax returns for two income years, especially if the reason for the delay is due to unforeseen or unfortunate circumstances.”

Extending the proposed threshold to three or more outstanding tax returns would better allow taxpayers to address any outstanding tax returns in a more reasonable period of time.

Given that the outstanding returns do not need to be for consecutive years for an ABN to be cancelled, it is essential that the Commissioner provides adequate notification and warnings to impacted taxpayers.

“Taxpayers need every opportunity to understand the potential impacts of outstanding returns to their livelihoods, with a reasonable amount of time to seek assistance and remedy any lodgment issues,” the submission stated.

“Inserting a notification requirement into the Draft Bill or requiring the Registrar to confirm that the appropriate notice was sent will provide taxpayers with greater protection before an ABN is potentially cancelled.”

DBA Lawyers director Daniel Butler told SMSF Adviser last month that the proposed ABN changes could have a substantial impact on SMSFs where they are behind on lodging their SMSF annual returns.

“If an SMSF’s ABN is cancelled there are a number of follow on consequences,” warned Mr Butler.

Once the legislation is passed, SMSFs will also need to ensure that they confirm the ABN details each financial year.

Based on previous comments by the ATO back in 2019, it is expected that SMSF members will be confirm the accuracy of the details held for the ABN through the lodgment of the SMSF annual return, said Mr Butler.

The ATO told SMSF Adviser in 2019 that the government would look to minimise the impact of the changes on ABN holders.

“This includes allowing ABN holders to check their ABR details through existing business interactions, such as through the lodgment of income tax returns, without the need to introduce new reporting processes,” it stated.