Early, forthright engagement with the ATO pays dividends
When you personally, or your business, owe money to the Australian Tax Office (ATO), the sooner you engage with its staff the better.
Penalties will be harsher the more obvious your disinclination to settle a debt. You cannot expect the ATO to allow you to use money you owe it, to the disadvantage of conscientious taxpayers.
Remember however, that tax officers are willing to negotiate conditions for extra time to pay, when debtors deal with them in good faith.
Preparing to engage
You are reasonably placed for engagement with the ATO if all your lodgements are up to date.
As a top priority, work with your accountant to get this done.
Your accountant is in a better position to negotiate on your behalf with the ATO for extra time for outstanding tax to be paid, if your lodgements are current. Payment in installments may then be arranged, penalties reduced, or perhaps remission of GIC – the General Interest Charge imposed when an amount of tax is unpaid by the due date.
Solicitors can often work effectively with accountants, not only to have the ATO allow clients extra time to complete lodgements, but also negotiate arrangements to settle tax debts in a variety of circumstances. These could include situations where, as a result of creditors’ petitions, the ATO, has already begun court action to bankrupt individuals or liquidate companies.
But it’s a mistake to assume the ATO is obliged in any way to operate to your convenience. It’s a policy driven organisation established to collect tax for the government of the day, and it would, for example, be willing to encourage a taxpayer’s avoidance of bankruptcy only if that would enable recovery of more unpaid tax.
Procrastinate at your peril
A business’s tax debt is more often than not indicative of a cash flow problem having a variety of causes. Had expert advice been sought earlier to address these causes, the less likely there would have been a tax debt.
Macks Advisory’s advice to clients is always to seek expert advice promptly should they anticipate legal action about a tax debt, arranging immediate representation should they receive a creditors’ petition or a winding-up application.
The ATO is not obliged to postpone a court action or allow you more time to do anything, but may be willing to grant it should you supply satisfactory answers to such questions as:
- why engagement with the ATO hasn’t occurred?
- if it has occurred, why haven’t you responded satisfactorily to that engagement?
- why haven’t lodgements yet been brought up to date?
- if steps have been taken to render them current, what steps were those?
- what possibilities are there for payment once the total tax debt is known?
- what time is considered necessary to provide complete lodgements and payment of the debt?
If the ATO doesn’t agree to postpone court action, it’s up to the taxpayer nevertheless to persuade the court there is justification for an adjournment.
If you take away but one thing from our advice on dealing with tax debt and the ATO, let it be this: procrastination is the thief of time you cannot afford to lose.