ATO steps up credit agency reporting on tax debts

This article was current at the time of publication.

Many businesses are risking their outstanding tax debts being disclosed to credit reporting bureaus as the Australian Taxation Office (ATO) ups the ante with its efforts to recover billions of dollars in overdue payments.

The ATO has written to more than 70,000 businesses in recent weeks, warning them their tax liabilities will be disclosed unless they make contact and enter a tax repayment plan.

The regulator has also started issuing about 100 Director Penalty Notices (DPNs) a week, enabling it to begin legal proceedings to recover debts and associated penalties.

Once businesses receive a notice from the ATO, which includes steps to avoid their tax debts being reported, they have 28 days to act.

“Both programs focus on making taxpayers aware of their obligations, the actions we may take, and provide clear pathways for taxpayers to re-engage, work with us, and avoid escalation,” says ATO Deputy Commissioner Vivek Chaudhary.

“As part of this approach, we will continue to offer support to help taxpayers meet their obligations.”

High tax debts

The ATO’s efforts are focused on businesses with tax debts of $100,000 or more that are over 90 days past due, and where there are no active complaints with the Inspector-General of Taxation and Taxation Ombudsman about the ATO’s intent to report tax debt information.

“It’s critical that taxpayers or their representatives talk to us and respond to our calls,” Chaudhary says.

“Don’t stick your head in the sand. Even if you can’t pay the full amount owed straight away, contact us or your registered tax professional to discuss and we will work with you to set up an appropriate payment arrangement. We cannot help taxpayers who do not engage with us.”

In addition to the disclosure of business tax debts, the ATO’s recovery options include issuing garnishee orders and penalties, launching legal action, creditor’s petitions, winding up applications, and insolvency actions.

“Our debt collection activities prioritise taxpayers representing higher risks and those refusing to engage,” Chaudhary says.

“That is why our initial focus will be on taxpayers with higher debts before including taxpayers with all other debts. Taxpayers with Superannuation Guarantee debts may be prioritised irrespective of their debt value. This is because the Superannuation Guarantee is an entitlement owed to employees.”

All businesses will need to sign solvency declarations for the 2021–22 financial year when they finalise their accounts and lodge annual tax returns.

Builders under pressure

CPA Australia’s Manager Public Practice and SME & Insolvency Policy, Kristen Beadle CPA, says it’s evident some businesses have large outstanding tax debts.

“We’re hearing anecdotally that some of those debts range from $200,000 to well over $1 million,” Beadle says.

She notes that the building sector is under particular financial pressure because of supply chain issues, labour shortages, and being locked into fixed-term legacy contracts with no profit margin due to rising materials costs.

Under current state-based laws, builders seeking lawful insolvency options risk losing their operating licence.

“The fact they’re not provided with an equal playing field in terms of being able to seek assistance through relevant advisers is a pretty poor scenario for them,” Beadle acknowledges.

“We’re liaising with state governments on this issue to advocate on behalf of small businesses and our members because we want to make sure our members in public practice can send their clients, who may be experiencing financial difficulty to the right place for the right advice.”

Wind-ups on the rise

Principal of insolvency practice Crouch Amirbeaggi, Shabnam Amirbeaggi FCPA, says the key message from the ATO is to act early.

“What a lot of directors are doing is waiting until their DPNs are issued,” Amirbeaggi says.

“The ATO has passed the point of messaging and messaging and trying to get people to interact. DPNs are now being issued and where they’re not being dealt with, they’re issuing wind-up applications.”

Amirbeaggi says that in terms of insolvency, the important thing to note is that DPNs no longer allow directors to enter into a payment arrangement. 

“The ATO has removed that option and instead inserted the ability to enter into a small business restructuring plan and appoint a small business restructuring practitioner,” she says.

However, this need not always mean the end of the road for a business.

“People think that once they come and see a liquidator or a trustee in bankruptcy that will automatically mean their business will shut down,” Amirbeaggi says.

“But if you come in early enough, we can look at restructuring options and other means of keeping business survival rates up.”

• If your client has an ATO debt and are at risk of enforcement, here’s a complimentary CPA Australia decision tree to help plot the next steps.
• Taxpayers with debts should speak with their registered tax practitioner or call the ATO on 13 11 42 (8am to 6pm local time, Monday to Friday). 
• For debts of $100,000 or less, payment plans can be set up using the ATO’s online services or by phoning the ATO’s automated phone service on 13 72 26.