Some of the action which the Australian Taxation Office (“ATO”) can take in order to recover company tax debts includes:-
Statutory Demands and Winding Up Proceedings
The ATO, like all creditors who are owed a debt of over $2,000, can issue a company with a Statutory Demand. If the company fails to pay the amount claimed in the Statutory Demand within 21 days of service, or make an application to Court to dispute the demand, then the ATO can file winding up proceedings in Court and obtain an Order that the company be placed in liquidation.
Director Penalty Notices
The ATO can recover a company’s unpaid PAYG Withholding Tax (“PAYG Tax”) and superannuation debts from the company’s director, or directors, by issuing the director(s) with a Director Penalty Notice.
In some circumstances the debts claimed by the ATO under a Director Penalty Notice can be avoided by placing the company into liquidation or administration within 21 days of the date of the notice. However, where required ATO lodgements for PAYG Tax and superannuation debts have been made more than three months late, a company’s director(s) is unable to avoid liability under a Director Penalty Notice in this manner.
Further information regarding this matter is available in our article on Director Penalty Notices.
In order to recover company tax debts, the ATO can issue a Garnishee Notice to a party that holds money on behalf of a company or who may be liable to pay money to that company. The ATO commonly issues Garnishee Notices to a company’s bank or debtors or against the sale proceeds of an asset (commonly real property) which a company is selling or has sold. If a Garnishee Notice is issued to a company’s bank, the ATO will request that a percentage of funds held in the bank account (commonly 70% or more) be paid to it.
Further information regarding this matter is available in our article on Garnishee Notices.
Disallowing PAYG Withholding Credits
The ATO may “disallow” PAYG Tax credits available to a director or a close associate of a director in their personal income tax returns in circumstances, where the employer company has failed to pay PAYG Tax in respect of amounts paid to them. These provisions apply from 1 July 2012 onwards.
Security Over a Company’s Assets
In circumstances where a company is unable to pay its tax debts to the ATO the ATO may request, as part of a payment arrangement with a company, that the company provide security over its assets to secure the ATO’s debt.
The ATO only requests security in very limited circumstances, with the most common form of security requested being a mortgage over real property.
Engagement of Third Party Debt Collectors
The ATO commonly engages external debt collection agencies to collect unpaid tax debts on its behalf.
Security Bond Deposits
In some circumstances the ATO will ask a company to provide a security bond deposit against projected future tax liabilities. The ATO may ask for a security bond deposit prior to registering a company for an ABN in circumstances where they consider that a company’s director has a history of being associated with companies which have failed to report and/or pay required tax amounts.
Advice and Assistance – Company Tax Debts
The above is only a brief summary of the types of recovery actions which the ATO may implement to recover company ATO debts and professional advice should be obtained where required.