Around November 2021, the ATO started getting back into some of their more regular type of debt collection activities. That included sending people an SMS, making phone calls, reminder letters and the like. Then in April 2022, they conducted a couple of awareness campaigns and it was really where the ATO started to explain the consequences of a new law passed a year or so earlier, which was the ability in certain circumstances to report a tax debt to credit reporting agencies; that is the public disclosure of business tax debt.
This was to make businesses aware that where they are starting to fall into the criteria where they could be reported, but the main intent of the campaign was to raise awareness that the ATO was starting to follow up those taxpayers where there was money owed.
The result has been very pleasing to the ATO in that they have reported a lot of businesses coming to them either themselves or through their tax agent and entering into payment plans; a move the ATO sees as the beginning of taxpayers working through how to actually repay their debts.
Obviously not everyone did that, so since then, there has been some follow up with director penalty notices being issued. And so far they have had a very small number of businesses reported to credit reporting agencies. The main message for business owners is if you’ve got an ATO debt then talk it through with your accountant, or the ATO and they will assist you with a debt arrangement; if the liability is $100,000 or less they will put an arrangement in place for less than two years via an online ATO application – very accessible for everyone.
Sometimes there are other issues – not just the ATO
Where there is a tax debt there’s a chance that there may be other debts and other fundamental issues with the business so more than just a repayment arrangement is necessary. This is when you need to be working with specialists in this area to ensure that your business gets back on its feet and its future plan for prosperity is realistic.
The ATO wants their warning letters to be taken seriously and to be used as an opportunity to reach out and get help from a specialist. Talk to whoever gives you your financial advice around running your business, but remember it often isn’t just the tax debt. Talk to someone who knows all the options and not just the ones they specialise in and sell.
Obviously you will need a plan because just hoping things will get better is not going to work. Where there is a solid plan and there are solid fundamentals for the business to be able to navigate through their difficulties the ATO is open to working with businesses. This could be through repayment arrangements or something more formal like a small business restructuring.
The business must keep lodging their activity statements and keep paying what they need to for continued trading, but they may get some relief through a payment plan which can be for a number of years, and this will help them get back on track.
So the ATO says, it ‘… wants to keep viable businesses in business and we’ve got no desire at all to see viable businesses closed down’.
However, there have been record low numbers of insolvencies over the last couple of years as some unviable businesses haven’t had to make that tough choice around actually closing the business down. So they want to see business owners making informed choices with good advice from their advisors and if they are no longer viable then they should close; if they are viable then they should repay what they can, and the ATO will more than likely give them an opportunity to get back on track, rather than forcing the businesses to close.
But, part of the condition of the ATO payment plans is that you must keep up to date with your current obligations. So that’s generally lodging your activity statements, but then also paying anything that’s due with those activity statements going forward. And then the payment plan deals with your debt to the ATO up to the point that you go into the payment plan. So it’s a really important to work through the projections.
Despite all of this, the ATO is mindful of a level playing field and categorically states that the ‘ATO isn’t a bank’, so it’s not a commercial lending arrangement, and will look at the makeup of the liability – they encourage businesses to pay the superannuation which are in fact obligations to your employees, and then talk about what’s possible with the rest of the debt.
Despite most people not liking the correspondence from the ATO, the reality is that times are changing and people should not be anxious about opening the letters. If the ATO is reaching out to get in contact with you or letting you know that you’ve got a debt, get in contact with them and address it, there is a good chance you’ll be pleasantly surprised around what could be possible and what can be arranged – don’t ignore it. As always – feel free to speak to me, Ginette Muller if you need advice around any of the issues raised in this story.