As a result of Covid-19 there has been a significant increase in the level of tax debt owed to the ATO. This has seen unpaid tax debt nearly double in the last four years. The table below sets out details of what the ATO considers is total collectable tax debt, as well as collectable tax debt owed by small businesses and unpaid GST and PAYG Tax (or Activity Statement tax debt):
There have been estimates that as at 31 December 2021 the total collectable tax owed to the ATO will be around $50 billion, being double what was owed prior to the Covid-19 pandemic.
The two reasons we see for this increase in tax owed by businesses are:
- Obviously, businesses failing to pay tax because of financial difficulties; and
- The ATO not taking any material recovery action from around March 2020 onwards.
ATO recovery action often results in businesses paying tax owed entering into payment plans with the ATO. It can also result in business owners deciding to enter into some form of insolvency appointment to deal with a businesses tax debt.
The issues and risks going forward
At some stage the ATO is going to start taking recovery action against businesses again. When this happens business owners will need to decide whether they are able to pay the ATO or whether there is another option for their company. Options can include:
The main risk we see for business owners is around the ATO’s ability to make directors personally liable for unpaid GST and PAYG Tax. The total of this debt (although it will include interest and penalties) was nearly $20 billion at 30 June 2020. This means there are a lot of companies out there who’s directors could be at risk of personally having to pay tax debts to the ATO.
What should business owners do?
If you have a tax debt you should get advice about how to deal with it and the risks involved. We are happy to talk to you for no upfront cost and advise the options available. An example of a business we recently helped deal with a nearly $1 million tax debt (and other debts) is set out in this article.