ATO Plans to Step Up Debt Collection – Are you in their sights?

ATO Plans to Step Up Debt Collection – Are you in their sights?

If you have a TAX, PAYGWT, GST, FBT, SGL or other debt owing to the ATO, then this information is VERY relevant to you.

The following information was just received this from a “Big End of Town” tax consultant in Sydney regarding ATO debt recovery.

“….. attended the Association of Independent Insolvency Practitioners webinar where the ATO gave an update on what they will be doing going forward. The main thing I got out of it was:

  • Collection activity (e.g. wind up and bankruptcy notices)
  • ATO will not consider debt settlement on principal tax debts (i.e. will only negotiate on GIC and penalties), taxpayers can only seek a compromise through a Voluntary Administration or a formal Small Business Restructure
  • ATO will continue to issue Directors Penalties Notice where they see non-compliance, especially outstanding super
  • Their collections team is now back full time
  • ATO is more willing to support a Deed of Company Arrangement (DOCA) proposals if tax debts were newer (say debts incurred in 2020 compare to a debt incurred in 2018).

My Commentary: What do you need to do?

It is understandable that many business owners, since the first COVID19 lock down back in March 2020, have taken the tack of not paying some or all current tax and SGL debts on the basis that:

  1. Cash flow had dried up and funds were not available
  2. The future was uncertain so preserving cash reserves helped business survival
  3. The ATO took a very soft approach to debt collection so as not to compound the strain on cash flow debt
  4. The above factors provided a landscape for the culture of slow payment or not paying tax & SGL debts to develop.

To avoid tax debt mounting to difficult unmanageable levels, it has always been our advice to clients to pay the taxes & SGL as and when they fall due or as a minimum, enter into a payment plan sooner rather than later. On the other hand I have heard of stories where …

  • some business owners are racking up huge tax and SGL debts to prop up their struggling businesses.
  • whilst some business owners who have traded profitably have taken advantage of the ATO’s soft debt collect approach and racked up huge debts so they can use the money for other purposes.

Regardless of your reason, if you have an outstanding tax debts you have FIVE options:

  1. Do Nothing, and wait for the ATO to get around to chasing you for the money and deal with the consequences then. ( We strongly recommend against this),
  2. Contact the ATO NOW and organise a payment plan (perhaps in part with option 3 below),
  3. Contact your financier and organise a loan to pay of the SGL and tax debt,(perhaps in part with option 2 above). My understanding is that many of the big 4 banks will not lend to pay down tax debt but my understanding is that some of the second tier banks do. One that comes to mind is BOQ.
  4. Assuming you have the funds, and based on the above, payout your oldest debts first. Ideally, to reduce the possibility of being held personally liable for tax debts,  the order in which debts should be paid out are:
    1. SGL and other super debts
    2. GST
    3. PAYGWT
    4. Income Tax
  5. If after investigating options 2, 3, and 4, you find yourself in a position that you are of the opinion that you cannot pay these tax debts as and when they fall due then you may be insolvent in which case you need to seek further advice from an accountant, commercial lawyer or other insolvency practitioner.


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