ATO steps up efforts to reclaim debt

This article was current at the time of publication.

At the end of February this year, the Australian Taxation Office (ATO) had $32 billion in collectable debt.

Small businesses accounted for the majority, collectively owing the ATO more than $21 billion, with privately owned and wealth groups indebted $7 billion and individuals about $4 billion.

During 2020, following a series of natural disasters across Australia and the onset of the COVID-19 pandemic, the ATO granted almost 13 million extensions for lodgements and payments. This was alongside almost 700,000 payment plans tailored to individual circumstances.

However, with the Australian economy now firmly in recovery mode – evidenced by strong growth figures and a sharp decline in unemployment – the agency has stepped up its efforts to rein in outstanding tax debts.

Its simple message to tax practitioners and those owing it money is to get in touch.

Support on offer

“The number of taxpayers with outstanding payments or lodgements has grown,” an ATO spokesperson told INPRACTICE. 

“It is important not to lose touch with the tax system, so if you need help, reach out.

“In terms of our current approach to debt recovery, we understand the bushfires from last year, COVID-19, or recent floods may continue to have a significant impact on taxpayers and tax professionals.”

After effectively pausing most of its debt and lodgement compliance activity in early 2020, the ATO restarted its outbound engagement last July, with a primary focus on offering help and assistance.

Since then, more than a million taxpayers have taken steps to resolve their overdue payments and lodgements.

“Whilst the basis of all our engagement continues to be the offer of help and assistance, we [have also] restarted taking a firmer approach with taxpayers who continue not to engage with us and whose obligations remain outstanding,” says the spokesperson.

This includes the application of penalties on a case-by-case basis. 

Although the key message remains that it’s never too late to engage with the ATO, it’s important that taxpayers keep their lodgements current, even if they aren’t currently in a position to pay. 

According to the ATO, on-time lodgements not only provide certainty to taxpayers about their net tax position, but enable it to tailor help and assistance.

“If a taxpayer is worried about payment, they should still lodge and then contact us for help with payment,” the spokesperson advises.

Cash flow boosts available

Some small and medium-sized businesses impacted by COVID-19 have not lodged last year’s activity statements. However, they may remain entitled to the ATO’s temporary cash flow boost measure.

Eligible businesses and not-for-profits that employ staff could receive between $20,000 and $100,000 cash flow boosts by lodging their activity statements up to the month or quarter of September 2020.

Taxpayers can also set up a payment plan with the ATO to settle debts by instalments. This can be done online for debts under $100,000.

“We know it’s been a tough couple of years for many businesses – large and small,” the spokesperson says. 

“We completely appreciate that many businesses and company directors [are] still feeling the impacts of the pandemic, and for many [that is] on top of things like natural disasters and other adverse events.”

Depending on a business’s circumstances, COVID-19 support options include: 

• extra time to pay debt or lodge tax forms such as activity statements
• prioritising any owed refunds
• setting up a payment plan tailored to individual circumstances, including an interest-free period
• remittance of penalties or interest charged during the time they have been affected.

Businesses may also be able to take advantage of government measures such as temporary full expensing and loss carry back.

Don’t bury your head in the sand

Deloitte Financial Advisory partner Robert Woods CPA, who specialises in insolvencies, says the important thing for practitioners and their clients is to communicate with the ATO.

“They seem to have a real mindset that if you pick up the phone and contact them, they’re more than happy to have a conversation and be as accommodating as they can be,” Woods says.

“But if you’re going to bury your head in the sand and ignore them, the ATO will pursue [you].”

He points out that the ATO’s softer stance last year saw insolvency levels decline sharply.

From 1 July 2020 to 31 March 2021, it initiated only six bankruptcies and three company wind-ups.

“In any given year, the ATO is probably the most prominent creditor in the insolvency space,” Woods notes. 

“They’re either at the forefront of making appointments to liquidate companies or bankrupting individuals, or they are a significant creditor.

“Since the end of JobKeeper there has been a bit of an uptick, but with the ATO and banks still being very accommodating, the activity is nowhere near what it was pre-COVID.”