Let’s make a deal: How to negotiate complex payment arrangements with the ATO

We’re often contacted by the accountants of companies owing large sums of money to the Australian Taxation Office (ATO). These companies may have previously defaulted on ATO payment arrangements, or had subsequent payment arrangement offers refused.

In some cases, their only option is to appoint a liquidator or voluntary administrator. However, if the company has been trading profitably (or can do in the future), liquidation or voluntary administration usually aren’t the best alternatives—especially given the potential problems for directors.

How we can help

Here are the four steps we take for all matters referred to us, including those companies with large ATO debts:

1. Review the company’s circumstances with its directors and accountant.

2. Consider whether the company can trade profitably in the future, taking into account any steps that have been taken (or will be taken) to improve its profitability.

3. Look at the risks to directors associated with any future insolvency appointment, such as liability for personal guarantees or Director Penalty amounts.

4. Advise the company directors of the options available, such as:

  • negotiating compromises or payment arrangements with creditors;
  • selling part (or all) of the company’s business;
  • arranging finance;
  • implementing turnaround strategies;
  • placing the company in liquidation or voluntary administration.

For companies that have breached ATO payment arrangements, or been refused further arrangements, it may be best for us to propose a payment arrangement with the ATO on their behalf.

How we secure ATO payment arrangements

As every situation is unique, there’s no ‘best’ approach to take when negotiating a payment arrangement with the ATO. However, in most cases we advise the ATO of:

  • The estimated return they’ll receive by forcing the company into liquidation (something we can do as registered and official Liquidators) compared to accepting the proposed payment arrangement;
  • The company’s estimated future profitability, along with any profit improvement or turnaround strategies it has put in place.

We’ve found this approach to be particularly effective when dealing with the ATO. Most companies placed in liquidation will provide the ATO with little (if any) return, given the other creditors and costs that will be paid first. The ATO is aware of this—their internal statistics show that formal insolvency appointments give them an average dividend of less than five cents in the dollar.

How accountants can help

Even if the ATO accepts a payment proposal, it isn’t necessarily a complete solution for the company.  Once a payment arrangement is in place, the company’s directors and accountant need to come up with profit improvement strategies to address any underlying issues in the company.

While we can help with this process, we usually find the company’s accountant can offer the best advice on what the company can do to improve its financial performance.

How we’ve helped others negotiate with the ATO

Each year we help companies negotiate payment arrangements with the ATO. Here are some of the arrangements we’ve helped create:

  • A large transport company owed several hundred thousand dollars to the ATO, and had defaulted on eight previous payment arrangements. After reviewing the company’s circumstances with its directors and accountants, we advised that placing the company into liquidation would likely result in the directors’ bankruptcy due to the numerous guarantees they had given to financiers and other parties.The directors then engaged us to put another proposal to the ATO: an arrangement to pay the company’s tax debt over two years providing the ATO agreed to write off the interest and penalties it had charged.After some negotiation the payment arrangement was accepted, and the company avoided being placed into liquidation.
  • In late 2016, the director of a company approached us about a retail business it traded. The business owed several hundred thousand dollars to the ATO, which had taken steps to place the company in liquidation. The ATO had issued the company with a statutory demand and refused a payment arrangement request to pay its outstanding debt by monthly instalments.We put a similar payment arrangement proposal to the ATO. However, as part of the proposal we pointed out the ATO’s likely return in liquidation, along with details of the steps the company had taken to improve its profitability.The ATO accepted this payment arrangement and agreed to withdraw the statutory demand it had issued.

Once these payment arrangements were accepted, the companies obviously needed to ensure they traded profitably in the future and could both meet the required ATO payments and pay debts to other creditors. In both cases, the company directors asked their accountants for help and advice on these matters.

Hopefully they’ll continue to turn their situation around and be able to trade profitably in the future without needing further assistance.

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We’re happy to answer any questions you may have, so please don’t hesitate to call us and schedule a consultation.

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