Why does the ATO Bankrupt people with a Tax Debt?

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ATO Bankruptcy - Why the ATO chooses bankruptcy over a payment plan?

The answer to this tax debt and bankruptcy question is of concern to many business people. Rightly so, as tax debt is a major cause of ATO bankruptcy and business closure. Significantly, the ATO collection and hardship policies are very different than credit card companies or home loan lenders. Certainly, resulting in good businesses being closed.

Let's start by looking at the ATO directives involving business and tax debt.

ATO Tax Debt Policies

The ATO has plenty of policies around tax collection, including ATO bankruptcies. Henceforth, some of the important policies are listed below:

  1. Firstly, the prime ATO policy is to foster a competitive environment in Australia. As a result, to support this, the ATO requires non-tax paying businesses to close. Resulting in, tax-paying businesses to thrive and pay tax.
  2. Secondly, it is illegal for an insolvent business to trade. Consequently, if your business is trading insolvent there are substantial penalties. The Australian Tax Office will obtain court orders and force liquidation of an insolvent trading business.
  3. Also, as a sole trader business the only recourse for the ATO is under the bankruptcy act. As such, a satisfactory solution could be a personal insolvency agreement.
  4. ATO payment plans should budget for the payment plan plus future tax obligation. Otherwise, the ATO would not approve a payment plan and you would be exposed to the risk of ATO bankruptcy.

ATO Accounts that show your tax debt

There are several tax accounts that each entity has with the ATO. Therefore, you may have each account below for each personal or corporate entity: 

  • Firstly, your BAS account or Integrated client account (ICA)
  • Secondly, Income Tax Account (ITA)
  • Legal Account, this account shows when an account has been passed to solicitors.
  • Superannuation Account if you have a superannuation debt.
  • Finally, not economical to pursue account. i.e this is a hidden account of which you will need to speak to the ATO to obtain a balance.

Any tax account can expose you to risk of ATO bankruptcy. Above all, if you hold an invoice from the ATO make note of the account. Since, it will indicate a single account & not all of your accounts with the ATO. Consequently, obtain a complete understanding of your accounts by obtaining from:

  • Your accountant.
  • Request from the ATO.
  • Otherwise, obtain directly from your ato tax portal.

Furthermore, thttps://bp.ato.gov.au/is can confuse business owners where they believe the debt on a statement is the entire tax debt amount. Importantly, the only way to obtain an accurate amount of tax debt owing is to obtain a tax portal statement. Finally, understanding your tax obligations and account balances can assist in avoiding an ATO bankruptcy.

What helps prevent tax debt escalating to ATO Bankruptcies?

 The ATO is a process-driven government department. Therefore, if processes are followed you can maximise the time available for ato debt collection. If you follow basic principles you will keep the ATO on your side, and support that your business is viable.

  1. Firstly, lodge all your Bas, PAYG and superannuation on time. Certainly, even if you cannot make the payment lodge the required information.
  2. Secondly, understand your tax accounts and the dates payments are due.
  3. Importantly, employ a bookkeeper.
  4. Furthermore, contact the ATO as soon as a payment issue arises.
  5. Call the ATO on or before any agreed date and time. 
  6. Update your registered office address for delivery of notices.
  7. Finally, obtain access to your own personal and company tax portal accounts.

Above all, the ATO wants each business to manage its business obligations. Hence, even if you are unable to make a payment, it's essential to communicate with the ATO.

Furthermore, business revenue and profit can go up and down. Indeed, the ATO wants viable businesses to survive. Therefore, if your business has suffered a slight downturn, the ATO will support your recovery. However, if the decline is systemic, the ATO will push to close your business.

Summary of an ATO Bankruptcy

Now let's summarise the information provided of why bankruptcy is in an ATO tool.

  1. Firstly, the ATO directive is to foster a competitive environment in Australia. Hence, if no payments are made to your account and you ato debt is increasing this is a warning sign. Consequently, your business would be viewed by the ATO as not fostering a competitive environment or the business is insolvent. Due to, your pricing being lower than your competition and causing compliant businesses to close.
  2. Secondly, your business would likely be wound up under insolvent trading legislation.
  3. Thirdly, as ATO debt is an unsecured debt the only way to collect on the debt is by force. As such, the ATO would seek bankruptcy via court orders, and using a bankruptcy trustee to recover tax debt unless paid back. Hence, bankruptcy would allow a trustee to sell assets and pay back creditors from the bankrupt estate.
  4. Furthermore, payment plans won't be approved unless tax returns are up to date. Also, any tax refund will be credited to pay your debt.
  5. Certainly, if you have recieved a wind up order, or court notice we recommend obtaining legal advice.

Loan Saver Network can offer tax debt solutions. Above all, solutions in negotiating reductions in ATO tax debt, payment arrangements, and assist in tax debt loan solutions. Consequently, help to avoid an ATO bankruptcy. 

ATO Bankruptcy and wind up solutions are complex and require investigation to source a solution. Consequently, we recommend contacting us to discuss your tax debts and the available solutions. We can be contacted on 1300 796 850 or via our enquiry form below.

Let's talk about a solution that suits you