As one of the most important fiscal bodies in the country, the Australian Taxation Office (ATO) is responsible for chasing up businesses for income tax, GST, PAYG tax on wages and superannuation debts. Often the ATO is the last creditor to get paid causing their debts to accumulate and prompting the ATO to take enforcement and recovery action.
If your business hasn’t managed its cashflow, it may find itself in the ATO’s firing line.
The main types of debt that the ATO tends to chase up are GST, PAYG and superannuation guarantee charge. These are generally paid monthly or quarterly and if your business hasn’t managed its cashflow, it may find itself in the ATO’s firing line, in which case you may be pursued in any of the following ways:
Statutory Demand / Winding-up Proceedings
A statutory demand is simply a notice issued by the ATO to commence the proceed that brings your company before the court to consider appointing a liquidator to your company. This notice gives you 21 days to pay your debt in full or alternatively you may apply to court to set it aside on various grounds.
If the statutory demand expires without you paying the debt in full or lodging a court application to set it aside, your company is deemed to be insolvent and the ATO can file an application to wind up your company and have a liquidator appointed. The court application will also be served on your company’s registered office.
Wind-up action can lead to corporate liquidation resulting in the closure of your business, the sale of its assets and a liquidator investigating the directors’ conduct and pursuing legal claims.
If the ATO, or any other creditor files a winding-up application at court, a company cannot appoint its own liquidator, however it can still appoint a voluntary administrator.
This is where business bankruptcy advice can prove essential. The professionals at Pearce & Heers understand how to make proposals that satisfy the needs of everyone involved.
The ATO can issue a garnishee notice to anyone who owes your company money. The practical issue the ATO faces is knowing who these parties may be. The ATO most commonly issues these notices to a company’s bank as they usually hold these details on file.
You will not receive notice that the garnishee has been issued until sometime after your bank has received it. Your bank is required to pay any credit balances in your company’s accounts to the ATO, as well as paying any other amounts deposited to the accounts until the notice is paid in full.
Director Penalty Notice
If a company owes the ATO unpaid amounts of PAYG tax or compulsory superannuation contributions, the ATO can issue a director penalty notice (DPN) for these amounts. The DPN is a notice to each director advising them that they have, or will, become personally liable for their company’s outstanding PAYG and/or superannuation debts.
Two ATO can issue two types of notices to directors. One allows the directors 21 days to appoint a liquidator or administrator to the company to avoid personal liability, and the other advises the director they are personally liable unless the debt is paid in full by the company.
The type of notice issued depends on whether the ATO Business Activity Statements (BAS), Installment Activity Statements (IAS) or superannuation guarantee charge statements (SGC statements) relating to the outstanding debts were lodged by relevant times. If they were, the ATO can only issue the DPN giving 21 days to appoint a liquidator or administrator to the company to avoid personal liability. If the respective return was lodged after required times, the debts become ‘lockdown amounts’ and the directors cannot escape personal liability.
As the Australian Securities and Investments Commission points out, if a business has minimal assets and liabilities, certain processes can be avoided. However, for most business owners that reach this point with the ATO, business bankruptcy advice is going to be a smart course of action.
The best way to deal with the ATO is to be proactive in communicating to them. The ATO is open to entering into payment arrangements, but any arrangement needs to be affordable. We commonly assist clients to negotiate payment arrangements with the ATO. Alternatively, if you’re uncertain about your company’s financial future a more comprehensive turnaround and restructuring engagement may be more appropriate.
For more information on how to set deal with your ATO debts and other creditors, contact the team at Pearce & Heers for a confidential consultation.[/vc_column_text][/vc_column][/vc_row]