A company is required to lodge ATO returns on time and pay tax debts within required timeframes.  However, often companies fail to pay required tax debts due to reasons such as:

• Poor economic conditions.
• Changes in trading circumstances.
• Cash flow problems.
• Poor financial management.
• Sudden unexpected events.
• Other reasons, sometimes out of a company’s control.

What Happens When a Company Fails to Pay Required Tax Debts

A tax debt which gets out of control and is not subject to an ATO payment arrangement can result in the ATO:

• Adding general interest charge and possibly penalties, which will increase a company’s tax liabilities;

• Issuing Director Penalty Notices to the company’s directors.  This can make the directors personally liable for the company’s PAYG Tax, GST and superannuation debts;

• Issuing Garnishee Notices to the company’s bank(s) or debtors. These notices require the bank(s) and debtors to pay funds held on behalf of the company, or payable to the company, to the ATO;

• Commencing action to liquidate the company by issuing a Statutory Demand and then filing a Winding Up Application; and/or

• Taking other types of recovery action.

What Should You Do if Your Company Has a Tax Debt

It is important for companies which fall behind in payment of their tax obligations to be proactive in their dealings with the ATO. As if discussions are not commenced with the ATO regarding the manner in which tax debts may be paid, the ATO is more likely to take recovery action.

The ATO will ultimately want a company to enter into a payment arrangement to deal with its tax debts.  This can sometimes be done online on the ATO’s website and using this means taxpayers can also provide details of estimated or suggested payment amounts and total amounts payable.  Payment arrangements can also be negotiated with the ATO via phone.

However, for larger tax debts, or for companies with a history of non-compliance, the ATO will want to be provided with written submissions and information to help the ATO consider if:

• A company has the capacity to pay the amount owed;

• The reasonableness of the proposal; and

• Any other matters relevant to the proposal and the ATO’s consideration of it.

We assist company directors and their accountants deal with unmanageable tax debts.  This includes, discussing risks associated with a company’s circumstances and formulating a manner in which to deal with the company’s problems. To deal with tax debts this includes negotiating ATO payment arrangements including getting the ATO to reduce interest and penalties which it has assessed.

What Type of Payment Arrangements Might the ATO Consider

Before proposing a payment arrangement to the ATO a company’s director should consider:

• How much can the company pay up front; and/or

• How much can the company realistically pay each period, e.g. each week or month; and/or

• Can funds be sourced from a third party to make a lump sum payment in a set period of time; and

• Often most importantly can the company be traded profitably in the future, as if the company cannot be traded profitably then perhaps options other than a payment arrangement should be considered.

The ATO may consider various types of payment arrangements which may include:

• Payments made over time.

• A lump sum payment of the full tax debt to be made within a certain period, for example 3 months.

• A lump sum up front payment and then further payments over time.

• In some cases, interim payment arrangements such as small payments to be made over say 6 months with a further arrangement to be negotiated at the end of that period.

• Payment arrangements which are supported by a guarantee and mortgage given by a company’s director.

How Does the ATO Assess Your Payment Arrangement

The ATO will consider various matters in respect of a proposal for a payment arrangement and this may include:

• The level of a company’s tax debt.

• A company’s historical tax compliance.

• Has the company entered into previous payment arrangements and has it complied with those arrangements.

• The length of the proposed payment arrangement.

• The amount, if any, which will be paid up front at the commencement of a payment arrangement.

• A company’s capacity to meet the terms of the payment arrangement which will often be based on financial information which the ATO is provided with.

For smaller or more simple payment arrangements, these matters can often be “assessed” via an online payment arrangement application or via a telephone call with the ATO.  However, for larger or more complicated arrangements written submissions will have to be made to the ATO which we can assist with.

Examples of Successful ATO Payment Arrangements

We assist in negotiating numerous payment arrangements for companies with the ATO each year, however, some of the matters we have successfully dealt with in the past are as follows:

• We assisted a large transport company negotiate its 9^th ATO payment arrangement in respect of debts totalling several hundred thousand dollars, which included the ATO writing off a portion of the interest and penalties which it had charged the company.

• We provided advice and assistance to a group of civil contracting companies including getting the ATO to withdraw a winding up application. This helped the companies avoid liquidation.

• We assisted a company’s directors negotiate a payment arrangement with the ATO in respect of amounts claimed by the ATO, totalling several hundred thousand dollars. The ATO was claiming the debt against the company and its directors as a result of Director Penalty Notices issued.

• We have on numerous matters assisted a company’s accountant put forward a proposal for a payment arrangement to the ATO where we considered that it was warranted for the accountant to do so, rather than the company engaging us to make the proposal.

Information and Advice

If you wish to obtain advice or assistance regarding any of the above matters, please contact our Brisbane or Gold Coast office. Our experienced staff will be able to assist you.