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Toying with the ATO’s patience can be costly

16 August 2021

There’s a limit to patience and it’s close to being reached in the Australian Taxation Office (ATO), where between 1 July 2020 and 31 March last year legal action against tax defaulters resulted in only six bankruptcies and three corporate wind-ups.

The ATO wants to support small businesses, because of course they’re the backbone of the nation’s economy and they need to stay in business to pay tax - Covid or no Covid. But the ATO’s empathy for good businesses struggling to pay taxes, balanced against the need for tax money to run the country, has reached tipping point.  

In the next 12 months it’s expected all Australians who wanted to be vaccinated will be, there will have been a Federal election, and many business owners who have been persistently tardy in meeting their tax obligations, will have received a letter from the ATO requesting them to establish a payment plan.

We urge you not to ignore this request because that may prompt the ATO to send you a Director Penalty Notice (DPN), the result of which could see you held personally responsible for your company’s tax debt.

In our 15 April newsletter last year (see articles headed Piercing the corporate veil and Deadline set for directors to apply for identity number). We pointed out that DPNs, previously issued by the ATO when companies failed to meet pay-as-you-go (PAYG) withholding and superannuation guarantee liabilities, would henceforth also be sent to directors of companies with GST, luxury car tax (LCT) and wine equalisation tax (WET) liabilities.

We referred readers too to legislation that now gives the ATO added power to pierce the corporate veil of companies and related identities that it reasonably believes are involved in illegal activity to dissipate assets, thus avoiding paying creditors.

Tax defaulters now unaffordable

Good taxpayers can no longer afford to, in effect, finance bad taxpayers’ survival. The Federal Government’s “accounts receivable ledger” in 2015 was represented by some $20b in uncollected taxes, which by 2020 had risen to $36b – that’s about a 75% increase.

Forward estimates suggest even if the ATO can put a brake on this rate of increase, outstanding taxes will nonetheless total $46b by 2025. That being so, it means uncollected taxes would have doubled in a decade.

Because the ATO has been reluctant to take a tough line with businesses lagging in tax payments, these figures aren’t too much of a surprise.

Neither is it a shock that usually optimistic budget papers, especially given the effects of Covid chaos, don’t project a surplus next year, in 2023, in 2024 or even 2025.

Clearly, uncollected tax is worsening the government’s cash flow problem to a point where it’s become imperative to do something about it.

Business owners, more so than ever in these troubled times, know the importance of tight control of their debtors’ ledgers in maintaining cash flow, so if they’re not paying their share of tax they can hardly consider it unreasonable for the ATO to send them a letter requesting establishment of a payment plan.

The ATO’s proactive approach

If yours is a business that needs time to fulfil its tax obligations, and it’s a good business, you can expect considerable tolerance from tax officers in negotiating such a plan, if for no other reason than it’s in the ATO’s and the national interest for your business to survive as an on-going taxpayer.

If you haven’t checked the ATO’s website for a while and would care to do so now, you’ll note there’s no longer, as was so until the end of last year, a requirement to demonstrate in detail the viability of your business before being eligible to set up a tax payment plan.

Macks Advisory of course does not know details of the ATO’s internal policies but we assume absence of this requirement is indicative of the increased readiness of tax officers to arrange mutually advantageous payment plans with business owners.

This is yet another reason for business owners to maintain close contact with their accountants and other advisers, to make the most of opportunities for post Covid financial survival – and for accountants and other business advisers to impress upon clients the importance of keeping up to date with tax lodgements, even if unable to pay the full amount of due tax.

We understand why directors of businesses that can’t meet tax obligations would be disinclined to lodge returns, but timely lodgement is the best way of personal protection and protecting the business.

Ignore the ATO at your peril

When a business has a record of making late lodgements, directors should not be surprised to receive a director Penalty Notice (DPN) from the ATO.

To refresh your knowledge of DPNs, circumstances in which they’re issued, and how they operate, go to our website at and type DPN in the search field.

The ATO can issue a DPN to lockdown a business and recover PAYG withholding, superannuation guarantee charges and GST, and directors who ignore the requirements of such a notice or procrastinate in dealing with it, do so at their peril.

Consequences can include loss of options to save a business, financial penalties and the likelihood of directors being held personally liable for the company’s entire tax debt.

Much misery can be avoided by timely reports to the ATO even when a business can’t pay its tax.

Earliest help is the most helpful

Recent changes in insolvency law allow firms like Macks Advisory to employ a suite of measures that allow us to help businesses concerned about their finances to undergo simplified restructuring.

It’s a process that can result in a reduction of tax debt that could mean all the difference between a business’s survival and its subsequent liquidation.

If you are a business owner in financial strife essentially because of inability to pay tax that’s due, and you come to us sooner rather than later, you will have gone a long way, for at least two important reasons, in helping us to help you – particularly if the business’s tax lodgements are up to date.

One: the ATO understandably takes a kinder view of businesses that acknowledge their tax debt than those that don’t, and tax officers often require a record of timely tax reporting as a precondition for supporting a proposal to deal with a debt problem.

Two:  the longer you delay talking to firms like ours, the fewer options there will be for lessening your problems.

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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