Article by Johanna Bond, Senior Accountant, Pearce & Heers’ Brisbane Office
One of the various recovery tools the Australian Taxation Office (ATO) can use to recover tax debts is to refer tax debts to external debt collectors.
What tax debts can the ATO refer?
If it is not paid on time, the ATO can refer any of the following tax debts (up to the value of $500,000) to a debt collector:
- Income tax debts;
- GST and PAYG Tax debts; or
- Superannuation debts.
What tax debts cannot be referred?
The ATO will not refer your tax debt to a debt collector if the debt is being formally disputed. If you formally dispute your debt after it has been referred to a debt collector, the debt will be returned to the ATO for them to look into.
How does the referral work?
Your debt is not “sold” to the debt collector, the collector merely acts as an agent for the ATO in collecting or settling the debt. The debt will always remain payable to the ATO. It is also important to note that the referral of your debt to a debt collector will not affect your credit rating.
The debt collectors are paid on a fee-for-service basis and do not earn commission. In addition, the ATO requires all of their external debt collection agencies to:
- Provide professional service and high-quality communication/negotiation;
- Apply the same guidelines as the ATO would when making decisions about payment of your debt or remissions of interest; and
- Comply with all government privacy and security measures.
How will you know if your tax debt has been referred?
The ATO’s debt collector will notify you in writing that your tax debt has been referred to them. The collector will then phone you or your authorised contact to negotiate payment of the debt.
What can you do when contacted by a debt collector?
You can negotiate with a debt collector in the same way as the ATO, meaning you can still negotiate to enter into a payment arrangement with the ATO and reduce your interest and penalties.
However, it is recommended you obtain professional advice about your available options and the potential risks you face. If you do not obtain advice, you run the risk of things getting worse or the ATO taking further action against you.
If the debt collector cannot reach an agreement with you about the payment of your debt, the debt will be returned to the ATO. The ATO will then likely implement any one or more of the following recovery actions:
If you or your business is having difficulties paying your tax debts or negotiating with the ATO or its external debt collectors, the professionals at Pearce & Heers can help with a free, no-obligation consultation. Please do not hesitate to contact us.