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The Australian Taxation Office (ATO) is adopting a stricter approach towards payment plans for tax debts, with shortened time frames and swift action for missed payments.
Businesses are experiencing heightened ATO activity in pursuit of outstanding lodgments and debt collection as the ATO aims to recoup the $50.2 billion owed by small businesses.
In its 2022-23 Annual Report, the ATO warned that it would take “strong and deliberate action” when businesses and taxpayers refuse to cooperate. This reflects an increased focus on debt collection.
Before the COVID-19 pandemic, the ATO generally accepted 12-month payment plans with an initial lump sum payment supported by financial documentation. However, during the pandemic, businesses were granted more flexible two to three-year payment plans with no upfront payment or financial documentation requirements.
This leniency changed in December of the previous year, as the ATO reverted to its pre-COVID 12-month payment plans, often with significant upfront payments, even up to 50% of the total debt. Moreover, these plans now require cashflow projections, indicating the ATO’s stricter stance.
The ATO is also taking a less forgiving approach when businesses or taxpayers miss payments or default on their plans, resulting in payment plan cancellations. This can escalate to creditor’s statutory demands to initiate winding-up proceedings against organizations.
A creditor’s statutory demand or bankruptcy notice is a formal request for debt repayment within 21 days of service. Failure to meet this deadline allows creditors to pursue winding-up or bankruptcy petitions, assuming no genuine dispute or set-off claim exists regarding the debt.
Directors are advised to ensure prompt payment under agreed-upon payment plans. In cases where cash flow issues hinder debt repayment, businesses should consider the implications of the director penalty notice (DPN) regime.
Non-payment of GST liabilities is immediately detected by the ATO. Timely lodging of business activity statements (BASs) is essential, even if immediate debt payment is impossible. Falling behind on BAS lodgments by three months or more can lead to a lockdown DPN, reducing penalty remission options.
With regular BAS lodgments, businesses have more options at their disposal, but a lockdown DPN places personal liability on the director, with full penalty payment as the only recourse, even if the business enters liquidation.
In summary, the ATO is tightening its approach to payment plans and taking swift action for non-compliance, emphasizing the importance of timely debt repayment and BAS lodgments for business. Directors should be cautious to avoid personal liability under the DPN regime.
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