Throughout the COVID-19 pandemic the ATO mostly ceased taking any type of recovery action to recover debts which it was owed. As a result of this, the total collectable tax debt which the ATO is owed has increased from $26.5 billion in 2019 to $38.5 billion, as at 30 June 2021.
The ATO has however, started taking recovery action to recover tax debts owed. This has included issuing a large number of director penalty notices and beginning to disclose business tax debts to credit reporting agencies.
Director penalty notices
The ATO issued around 52,000 letters to company directors in April and May 2022 warning that it could issue director penalty notices to directors. Director penalty notices can make directors personally liable for a company’s unpaid GST, PAYG Tax and superannuation with the full effect of director penalty notices discussed here.
The ATO is now issuing up to 200 director penalty notices every week. And this is going to have a significant impact on companies and directors, given director penalty notices make directors liable for company tax debts
Reporting debts to credit reporting agencies
The ATO has also recently issued nearly 30,000 letters to taxpayers with tax debts of over $100,000, advising that it can report them to credit reporting agencies.
The ATO has since started referring taxpayers to credit agencies, which can obviously have a crippling effect on a business.
What does the ATO intend to do in the future
The ATO wants taxpayers with tax debts to engage with it to pay the debts including via payment arrangements. The ATO has recently advised that:
“We understand that a lot of people, especially small businesses, have done it tough through COVID and may now have a tax debt………. Our message is, don’t stick your head in the sand, even if you can’t pay the full amount owed straight away, please contact us or your registered tax professional to discuss and we will work with you to set up an appropriate payment arrangement. We cannot help taxpayers who do not engage with us.”
However, when taxpayers do not engage with the ATO and seek arrangements to pay their debts, the ATO is now taking a more hard lined approach, their recent advice is summarised below:
“Where taxpayers don’t engage the ATO is taking firmer actions. These include garnishees, recovery of director penalties, Disclosure of Business Tax Debts, and legal actions including summons, creditors petition, wind-up and insolvency action. Our debt collection activities prioritise those taxpayers representing higher risks and refusing to engage. That is why our initial focus will be on taxpayers with higher debts before including taxpayers with all other debts. Taxpayers with Superannuation Guarantee debts may be prioritised irrespective of their debt value. This is because the Superannuation Guarantee is an entitlement that is owed to employees.”
What should you do to avoid ATO recovery action?
There are various things that can be done to avoid or minimise the risk of ATO recovery action which are summarised in our article here.
However, at the moment, the main thing the ATO wants taxpayers to do is engage with it and seek to come to an arrangement to pay debts owed, even if it is over time. The ATO also wants (naturally) taxpayers to keep making lodgements even if they can’t pay and lodgement history will likely be a relevant factor in the ATO assessing any proposal to pay a tax debt over time.
Company tax debts; further information and advice
Given the serious consequences a director penalty notice or other ATO recovery action may have, it is important that you urgently obtain advice if your company is unable to pay PAYG Tax, GST or superannuation.