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ATO tax recovery drive

25 November 2016

SA businesses yet to settle known tax debts, and/or having collectable taxes are being increasingly targeted by the ATO, and they are getting no sympathy from business owners who are paying their fair share of tax. But it’s the sheer size of those debts that remain due and which remain uncollected that raises issues for the SME economy – particularly in South Australia.

In an August 4 article, Some Answers for the Curse of Zombie Companies, Mack Advisory reported Australian businesses were then said to owe some $34bn to the ATO (at that time it was said to consist of $20bn of recorded debt and another $14bn of tax legally collectable but also yet to be pursued by the ATO).

A day of reckoning is at hand for many SMEs who have been relying on the patience of the ATO to allow them to stay in business. That patience appears to be wearing thin.

Axe falling on SA companies

An increasingly aggressive stance is being taken, even with companies that have in the past been cooperative in providing requested information to the ATO - especially when these businesses have agreed to successive repayment agreements based on information they supplied, and then failed to honour them.

Macks Advisory is aware of a number of SA companies whose principals, directors, even financiers, have been issued with garnishee notices (see article Garnishee Notices – What you need to know) and Director Penalty Notices.

Increasing numbers of companies are being forced into voluntary administration and liquidation primarily because they’ve defaulted on tax obligations.

Latest estimates recently provided by the ATO indicate this collectable tax is now acknowledged by the ATO to be $16bn. The figures appear to have changed in the recent 3 months but perhaps more relevantly it gets down to definition and classification. In any event what is clear is that the SMS economy can’t sustain tax debt; that said the business community is solid in its support of the ATO’s drive to reduce it. But most importantly the SME economy has been seriously affected by the inconsistent collection practices of the ATO over recent years. It is now even more vulnerable to a ramping up of the ATO’s collection practices.

We’re ready confidentially to advise clients and potential clients in financial difficulty - the sooner advice is sought and explained the better -- and we urge accountants to ensure businesses lodge and pay BAS returns promptly, while stressing also the need either to pay or report unpaid superannuation within required times.

The ATO is also ramping up legal proceedings against debtors it believes have been trading while insolvent.

The ATO’s perspective

And we hear from an ATO spokesman who told Macks Advisory: “Taking timely, stronger action also limits the broader harm being caused by non viable businesses that trade while insolvent and cause financial distress to suppliers, customers and employees.”

We understand the ATO doesn’t work to specific debt thresholds when deciding to initiate insolvency proceedings. Rather does it consider various factors that include size and nature of a debt, a business’s expected future income, and the debt’s likely effect on government revenue (including for instance whether the cost of pursuing it would be economic).

It’s important directors of businesses with tax problems maintain constructive contact with the ATO, which has demonstrated willingness to work with owners even after strong debt recovery action has started.

However, we suggest the more effective the ATO can be in getting a message across to the business community that it’s willing to take a balanced approach to debt recovery, the more likely are business operators to seek dialogue with tax officers to achieve mutual benefits.

Businesses’ perspective

Support for this view comes in a statement from Small Business and Family Enterprise Ombudsman Kate Carnell.

“While the ATO’s decision to step up activity against businesses that trade while insolvent is potentially a good thing, the approach should be about balance in flexibility and reasonableness, about tax officers not being too tough on businesses having a hard time that’s not self-inflicted.

“For example, owners of small businesses who may be having a few weeks of impeded cash flow that’s making it hard to pay GST or super, need to feel comfortable in contacting the ATO, but right now it’s clear many don’t.

“The health of the nation’s economy depends to a substantial degree on businesses irrespective of size meeting their tax obligations, and it’s in nobody’s best interests for the ATO not to try to collect outstanding tax.

“But the success of the current tax recovery drive will depend substantially on how effectively tax officers enable the business community to appreciate this, and cooperate accordingly.”

For more information, contact Macks Advisory on 08 8231 3323 or visit our office at Level 8 West Wing, 50 Grenfell Street, Adelaide SA 5000.

Disclaimer: The information contained in this webpage is general information and does not constitute legal advice. Nothing in this webpage is or purports to be advice. If you do need advice, then you ought to seek and obtain appropriate personal professional advice based on your personal circumstance.

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