The ATO, Covid, and Tax Debt.

Covid, the pandemic and the government response have been cited as the biggest social upheaval since the Second World War. However, we are moving on from the impact and looking toward recovery.

The ATO is seeking to collect taxes and reduce the amount of tax debt owed to them. As a result they are collecting taxes faster using single touch payroll; and allowing less to slip past them to end in a bankruptcy.

Tax Debt and the ATO

We are currently receiving many questions from our clients regarding the Australian Tax Office and its tax debt collection processes. Indeed, a moratorium on insolvencies was lifted on 31st Dec 2020 which allows companies and individuals to be pursued using insolvency as a means to an end in recovering debt including tax debt.

There has been an increase in activity in the ATO's collection activities' However, it's only recently we've seen this activity escalating. Because of this, we thought it was worthwhile opening this discussion on our website. If you read on, you will understand the ATO's point of view on Tax Debt, the businesses involved and the ATO's collection process.

Micro/small businesses (turnover up to two million dollars) account for around two-thirds of the ATO's collectable debt.
Around 2,000 staff, across 17 sites, work in the debt management areas of the ATO.

ATO Point Of View:

The ATO has quite a large sum of outstanding taxes they are seeking to recover. Currently, the tax owed to the Australian government has grown from around $1.3 billion, to around $2.5 billion. Accordingly, there is also a substantial amount of outstanding money owed by the Federal government as a result of the Covid response.

As you see above, the government will be attempting to recover as much money from outstanding taxes as possible. Plus, to assist in the collection/recovery of the economy we feel the ATO will start to push non-tax-paying businesses to close and instruct bankruptcy proceedings.

Historical ATO Approach

Large multinationals have not been required to collect GST on behalf of the ATO until more recent times (pre-covid).

At the date of first publishing this post, collectable tax debt was $13.6 billion. This was represented by 1.22 million cases. Of this, there was approximately $8.4 billion of activity statement debt. $4.7 billion of the total amount was unpaid income tax debt. The remaining amount was $345 million of superannuation guarantee debt and some sundry other debts too.
April 2020 - Latest published tax debt owed is approx. $34.1 billion.

Speaking earlier that year, there was mention of a small business consultative committee set up by the ATO. Their task was to chase up unpaid tax debts. One of their main targets was businesses that the tax office had pushed to the edge of existence. He said that non-viable companies were one of the main targets.

"The ATO was pursuing these businesses because of the threat they posed to counterparts," Mr D'Ascenzo told BusinessDaily. "We have increased the number of bankruptcies and liquidations, where we are the one instigating it because - having [been offered] a lot of payment arrangements - some people aren't able to hold up their end of the bargain," he said.

"For some, there's a default, then another default, then there is another default."

"We say we are keeping [a] business alive that is maybe not viable and that undercuts other businesses in their industry who are viable."

It can be seen that the ATO is targeting businesses in some cases that might be viable, but have had a rough patch and are on the way back into profit. This can be hard for them to distinguish, without expensive personal involvement in many businesses that will plead viability.

The Tax Debt Collection Process:

Identified Stages:

Early intervention - telephone, letters, external collection agencies, SMS messaging.
Firmer action - garnishees, director penalty notices, statutory demands.
Enforcement - legal action, bankruptcy proceedings, company wind-ups.

The ATO uses various tools to assist in their collection and decision-making. This includes an internal business viability tool. Its function is to assess a business's capacity to function within its guidelines. They also have financial modelling tools to assess cash-based businesses, such as market stallholders and grocers. This tool can assess the income and expenditure based across other businesses and present an estimate of the tax owed.

Each of the stages of the collection above has in its own right, a set of specified actions to communicate and recover unpaid taxes. The ATO has indicated that they will progress each stage if the business fails to meet arrangements or communicate a willingness to meet arrangements. The end result of non-compliance and payment would be bankruptcy and/or winding up the company/business.

Tax Debt Negotiation Help

If you are in this situation it is important to take fast action to rectify your liability to the tax department. This may be any or all of the following:

Initially, communicating with the ATO
Secondly, making a payment arrangement for the overdue taxes
Thirdly, paying ongoing tax liabilities
Fourthly, paying outstanding Tax Debts by asking for help with your tax debt.
Finally, consider using your home loan to pay your tax debt.

This is the sort of situation we work with every day. Our specialty is identifying how different business debt problems may be solved and when necessary, applying for tax debt finance or other business debt solutions.

Call Loan Saver Network to discuss your situation and the potential for a loan to clear your tax debt on 1300 796 850.

Let's talk about a solution that suits you

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