The ATO’s recent report on its activities for the 2021 financial year has shown that total tax debt, which the ATO considers is collectable, has increased to $38.5 billion. This compares to $26.5 billion for the 2019 financial year.
The following table shows the increase in debt from 2019 to 2021:
As you can see, much of the increase in debt has been as a result of increases in debts owed by small business. This is likely because of the ATO taking a much softer approach to recovery action since the start of the COVID-19 pandemic, meaning businesses have been accruing unpaid (and often unpayable) tax debts.
For example, in the 2021 financial year the ATO issued only six winding up applications to place companies into liquidation and only four applications to bankrupt people. This is in comparison to past years where the ATO has often issued over 1,000 winding up applications and 500 bankruptcy applications. The ATO has also, as we understand it, not issued any Director Penalty Notices for unpaid GST despite Director Penalty Notices applying to GST since 1 April 2020.
You Should Deal with Your Tax Debts Now
The ATO, however, has been very lenient in granting payment arrangements to businesses for unpaid tax debts. This includes granting long term payment arrangements which they would never have agreed to prior to the start of the COVID-19 pandemic.
This will all change at some stage though and the ATO will start taking recovery action against business and will also start being more stringent on granting payment arrangements.
Therefore, the best thing to do if you have a tax debt is to deal with it now. You have the best chance to enter into a payment arrangement, if that is feasible. Or if it is not feasible you should look at other options such as liquidation, voluntary administration, or small business restructuring before the ATO ramps up its recovery action.