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Tax Debt Firmly in the ATO’s Sights

If you have operated a business for the past few years, you are probably aware that the Australian Taxation Office (ATO) were a little more willing than normal to extend payment deadlines and work with businesses to ensure the prevailing economic conditions didn’t put them in dire financial straits. More recently, however, the ATO has taken a much firmer stance and increased legal action against businesses with tax debt – leading to a considerable uptick in businesses requiring assistance with negotiating payment arrangements and regaining compliance. Further, the ATO appears to be serving up legal action to business owners more and more without the courtesy of a warning letter. So, what is it that the ATO are cracking down on, and what can you do if you’re in a debt position with them?

What Exactly is the ATO Cracking Down On?

A significant number of small businesses find that the ATO is the institution to which they are the most indebted, and in many cases often their business is still viable, but for their tax debt. Others find that their cash flow hasn’t quite recovered to pre-COVID levels, and their woes are compounded by tax debt. Tax debt ballooned throughout the COVID-19 pandemic period – although the ATO wasn’t collecting as actively, particularly for those who kept the ATO abreast of their situation. Since COVID, business tax debt has increased significantly, with some sources reporting a greater number of businesses are now finding themselves in debt to the ATO to the tune of over $1 million. The ATO’s hardline approach to recovering this debt is particularly focussed upon businesses with overdue tax debt and outstanding lodgements, and regular offenders are top of the list.

While payment arrangements are often the most effective way to get back onside with the ATO and bring your compliance up to date, businesses with ongoing cash flow and lodgement issues may find it difficult to even negotiate an arrangement in the first place. Those with several rejected payment arrangements may also find it hard to successfully enter a viable payment arrangement in the future. The ATO is flexing their increased access to data and focussing on non-compliance in general, so it will be increasingly difficult for business owners and individuals to escape penalties and other legal action.

In 2022, the ATO issued just shy of 18,500 Director Penalty Notices (DPNs) regarding more than 13,500 companies for unpaid GST, income tax withholding, and superannuation guarantee charge. Furthermore, nearly 500 businesses with tax debt of over $100,000 were disclosed to credit reporting agencies. There is a raft of enforcement action the ATO can take, and there isn’t necessarily a prescribed path of action, that is, collection action is being ramped up often without warning. For example, a director of a company with compliance issues may receive a DPN without a prior warning letter.

I Have Tax Debt – What are My Options?

First and foremost, reach out to a tax specialist. They will help you review your tax debt position, and can assist you in opening up a dialogue with the ATO. From there, options can include affordable payment arrangements with the ATO that fit your cash flow. Also, some businesses are able to reduce their total debt by negotiating with the ATO, in some cases seeing interest and penalty charges waived. This is by no means possible for every business, but if you are open and honest, keep the ATO informed, and partner with a tax specialist, your chances of this positive outcome increases. The end goal for discussions between yourself, your accountant and tax specialist, and the ATO, is to get your business compliant again, alleviate the stress of tax debt, and ultimately protect you from further legal and enforcement action.

How MP+ Can Help

As prevention is better than cure, make sure your lodgements are up to date and you’re compliant – if you’re a client of McKinley Plowman, the Business Services team will be looking after this for you. Should you find yourself with tax debt or on the wrong end of a DPN or other legal action by the ATO, please don’t hesitate to reach out to the Taxation team at McKinley Plowman – the sooner we start helping you, the better the outcome. Call us today on 08 9325 2411 (Perth), 08 9301 2200 (Joondalup) or via our website.

written by:

Tax Manager Steven Lisle has been part of the McKinley Plowman team since 2007, and in that time has built his repertoire upon delivering industry leading, up-to-date international and Australian tax strategies and consulting services. Steve's clients enjoy the optimised tax outcomes he provides them, especially where complex structures could otherwise lead to significant tax obligations.

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