Beware ATO actions to recover tax and superannuation debt

Business owners should take note that it is now more important than ever to proactively manage and pay their tax debts and employees superannuation.

This is especially so because of the increased visibility the Australian Taxation Office (ATO) has of entities PAYG and superannuation obligations as a result of the implementation of Single Touch Payroll (STP) reporting. The STP reports effectively transmit real time information to the ATO and puts them in a position to initiate debt recovery very quickly when compared to having to wait until the year end payroll and accounting processes are complete and can be matched.

Also, from 1 July 2019, businesses that fail to comply with PAYG obligations are unable to claim the corresponding payments as a tax deduction. This could have a significant impact on your tax bill. You can read details on this new provision in our previous article here.

The ATO can take various actions to recover debts. The action taken is tailored to each individual situation and based on the circumstances, past behaviour and lodgment and payment history. Where early debt recovery steps don’t achieve the results the ATO is looking for, escalation actions can include:

    • Issuing a garnishee notice
    • Issuing a director penalty notice
    • Issuing a direction to pay super guarantee charge.

Garnishee notices can be issued to your financial institution, trade debtors and suppliers of merchant card facilities. This can seriously impact a business’s ability to continue operations as cash is redirected to the ATO to forcibly pay the debts. It can also impact the businesses reputation.

Director penalty notices can be incurred for the value of unpaid PAYG or superannuation guarantee charge, to enable the ATO to start legal proceedings. Or, the penalty can be collected by withholding tax refunds or credits otherwise due.

More serious legal actions can also be taken, including issuing a claim or summons, bankruptcy notice, creditors petition, statutory demand or wind-up action.

In response to a recent investigation by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) into debt recovery action undertaken by the Australian Taxation Office (ATO), Commissioner of Taxation Chris Jordan highlighted the collective small business tax debt and said “this is growing year-on-year and we have a legislative responsibility to collect tax debt.”

Tax liabilities in Australia came to over $500 billion in the 2017-18 financial year. Of this, 89.5% was paid to the Australian Taxation Office (ATO) on/by the relevant due dates and a further 6.4% was paid within 90 days of the due date. However, at 30 June 2018, a figure of $23.7 billion was still owed, including $15.1 billion owed by small businesses.

It is in the best interests of entities and directors to:

    1. Ensure all activity statements and tax returns are lodged on time
    2. Proactively engage with the ATO if you are not able to make a payment by the required date
    3. Abide by payment plans when set up.

If you are unsure of your tax and super obligations or how debt recovery actions may affect you or your business, please contact us on 03 5339 3200 or contact us here.

Thanks for reading.

The information contained on this website has been provided as general advice only.  The contents have been prepared without taking account of your personal objectives, financial situation or needs.  You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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