The ATO and their view on Taxes owed

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Tax Debt and the ATO
We are currently receiving many questions from our clients regarding the Australian Tax Office and their tax debt collection processes. There has been an increase in activity in the ATO’s collection activities so we though it was worthwhile opening this discussion. Read on to understand the ATO’s point of view on Tax Debt, the businesses and the ATO’s collection process.

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

Point of View:

The ATO has quite a large sum of outstanding taxes they are seeking to recover mostly from small businesses.

  • Collectable debt was $13.6 billion – represented by 1.22 million cases – approximately $8.4 billion activity statement debt; $4.7 billion income tax debt, $345 million superannuation guarantee debt; and some sundry other debt.

Speaking earlier this year, he told a small business consultative committee that by chasing unpaid tax debts, the tax office had pushed companies over the edge. He said that non viable companies were the target.

The ATO was pursuing the 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.”

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.

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. Including an internal business viability tool to assess a businesses capacity to function within their guidelines, and a financial modelling tools to assess cash based businesses, such a market stall holders and grocers. This tool can assess the income, expenditure based across other like businesses and present an estimate of the tax owed.

Each of the stages of collection above has in its own right, a set of specified actions to communicate and recover unpaid taxes. It 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.

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

  • Communicate with the ATO
  • Make a payment arrangement for past due taxes
  • Pay ongoing tax liability
  • Pay outstanding Tax Debt by asking for help with your tax debt

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