Jones Partner

BEWARE: ATO flags tougher stance on small business tax debt

25/05/2015 by Bruce Gleeson

Recent media coverage about the ATO tougher stance on small business tax debt [Daniel Meers from Herald-Sun on 21 May 2015] should serve as a timely reminder to company directors (owners) that find themselves unable to pay GST / PAYG or SGC to get the right professional advice, rather than ignoring the problem with the hope that they will be able to deal with it later. The recent article titled “No More Mr Nice Tax Guy” was also published in the Daily Telegraph.

The article in short indicated that the ATO has begun a crackdown on unpaid small business tax debt. This should come as no surprise as it tends to be these types of companies (ie mainly family businesses) that more frequently have significantly aged debt with the ATO either though non-lodgement and non-payment of returns and GST / PAYG / SGC or alternatively just do not pay such taxes on time. Sometimes there are legitimate reasons as to why it’s occurred, ie ill-health etc. However, the position still needs to be dealt with. In other circumstances, it may not be possible to negotiate a payment plan or some other arrangement with the ATO and thus some company directors (owners) will need to consider the financial position and future of their company, ie voluntary administration or voluntary liquidation.

Of particular interest was the ATO’s position, where Ms Cheryl-Lea Field revealed:

“There are a small number of people that won’t engage with us, and they may be trading insolvent or deliberately not paying.”

Ms Field confirmed that the ATO would not close businesses that genuinely wanted to arrive at a payment plan. However there was a clear message, that being if you are having difficulty, contact (either yourself or your advisor)  the ATO and see what can be worked out.

Ms Field also touched on a point I have raised previously, that being it is important for industry competitiveness that all businesses try and pay on time their tax debts (as well as lodge returns), as otherwise those that do not for a sustained period of time have an unfair advantage over those that do. Specifically, she revealed “it wasn’t fair for the ATO to overlook businesses refusing to pay taxes. If someone up the road is not paying their [PAYG] withholding or their superannuation, then that is simply not fair.”

It is critical not just with the ATO’s recent focus, but importantly with the Director Penalty Notice (“DPN”) regime in place for unpaid PAYG and SGC that company directors (owners) realise they can be personally liable for certain tax debts. In previous blogs I have covered the DPN regime in detail.

Whilst one can understand that family businesses at times have the ATO significantly down the payment queue, the ATO did say recently in a paper that it wanted to reduce the level of its “aged debt”. So this tougher stance should not come as much of a surprise.

As a Registered Liquidator with significant insolvency experience in dealing with family businesses, as well as having a detailed working knowledge of the DPN regime, I am happy to discuss with any company director that may be feeling under a little pressure regarding their company’s tax debt with the ATO and their potential personal exposure. However, as with many things in life, the sooner you get the right professional advice, the sooner financial independence can be regained. So don’t leave it any later than you need to.

Anecdotal evidence I have seen over the past few weeks reveals that the ATO does appear to be issuing more statutory demands on companies, as well as initiating winding up applications.