Company directors need to be comprehensibly aware of this
The Australian Taxation Office (ATO) has decided to use all legal power available to it to recover $46b in classified collectable debt, and, according to Alares Credit Risk Insights, 30,000 businesses are now subject to public tax debt disclosure and the immediate damage that will do to them.
If you’re a company director be aware the ATO is focusing on specific types of debt that include unpaid superannuation, PAYG, and GST collected from customers but not passed on to the government.
Taxation Commissioner Rob Heferen says the debt is “the largest the ATO has ever seen” and people who repeatedly refuse to engage with tax officers and ignore reminders to pay tax, are being targeted.
Errant company directors need to know weapons the ATO can use against them include:
- Director Penalty Notices (DPNs) following which directors become personably liable for unpaid, GST, PAYG and super.
- Garnishee Notices that allow the ATO to claim funds directly from a business’s bank or debtors.
- Engaging debt collection agencies to pursue outstanding tax debts.
- Tax debt disclosure wherebybusinessesare reported to credit agencies with consequent damage to credit rating and general reputation.
- Wind-up applications that force non-compliant businesses into liquidation.
- Bankruptcy Notices issued to individuals who owe more than $30,000. These can lead to personal bankruptcy proceedings.
- Departure Prohibition Orders that stop individuals with large debts from leaving the country.
Significance of a Final Notice
A “final notice to lodge” from the ATO is usually a request to provide information, submit outstanding tax returns or Business Activity Statements (BAS) or settle an outstanding tax debt. It may also indicate the ATO is considering further action that could include an audit or prosecution.
Because it’s a criminal offence, people who ignore such a notice face the likelihood of significant penalties.
SA non-compliers with a final notice from the ATO face prosecution in the magistrates’ court. Maximum penalties per offence include fines based on penalty units and/or imprisonment.
From the beginning of this year one penalty unit is $330, which may be increased by the latest Commonwealth Government indexation, size of an entity, and the duration of non-compliance. Corporate taxpayers face up to five times the maximum penalty that may apply to an individual, and for repeat offenders, penalties are significantly higher.
Your compliance
While understandably the ATO wants to recover the billions of dollars it’s owed, it also wants, as a priority, to do what it can to ensure this debt doesn’t escalate.
If you receive a final a final notice from the ATO don’t hesitate to contact your solicitor and accountant. Your strategy should be to have all outstanding returns prepared in at least draft form, so a tax solicitor can advise you on the order in which your returns should be lodged, whether you should apply for remission of interest or penalties, and whether you may be eligible for a refund.
When this is done promptly, the likelihood of prosecution tends to ease – especially if you can employ this strategy before the ATO files and serves a Complaint and Summons.
It’s important to understand the offence that triggers such a complaint relates to failure to comply with a final notice, not simply failing to lodge returns, because if you haven’t been served with a final notice, a not guilty plea can be made to the summons.
This is a legal defence for arguing the ATO hasn’t properly served its complaint.
Be aware that if you’re in such a situation , the ATO bears responsibility for criminal burden of proof – that is proof that all elements of your alleged offence are satisfied beyond reasonable doubt.
It’s Macks Advisory’s understanding the ATO is disinclined to proceed with court action in these circumstances because of the potential for a finding of so-called “adverse precedent” against it.
You should also know
However, you should also know the ATO has power to seek a court order compelling lodgement of tax returns.
Disobeying such an order can have serious consequences beyond fines, that include restrictions on future tax return lodgement deadlines, may involve breaches of employment obligations under, for example, the Australian Public Service Code of Conduct, and potentially a negative impact on visa or travel eligibility in the event of a criminal conviction being recorded against you.
In its interaction with individual taxpayers the ATO seeks to distinguish between those experiencing genuine financial vulnerability and those who are deliberately non-compliant. For it’s obviously in the ATO’s best interests to have as many individuals and entities remaining in business as possible.
Similarly, it’s not in the best interests of individuals and business operators to put their heads in the sand expecting tax issues to disappear magically. Failure to engage proactively with the ATO can be expensive. The ATO’s current rate of interest on unpaid tax debts is 11.36% which is none too far away from rates charged for personal loans.
So, one more thing, don’t consider getting stuck in a cycle of permanent debt trying to avoid the financial consequences of conflict with the ATO by meeting your tax obligations through personal loans.
The best financial advice Macks Advisory can offer taxpayers is that if someone from the ATO contacts you, don’t ignore them.
