There has been a general view amongst insolvency practitioners, though the ATO would disagree, that outstanding tax debt has not been pursued as vigorously in the last few years by the ATO as would normally be expected.
Whether that view was accurate or not it is clear that the ATO is now being very aggressive in pursuing outstanding tax debts, particularly in relation to business tax debt.
What we have observed at Bennett & Philp in relation to our clients is the ATO cracking down very hard on outstanding tax debts as indicated in the following examples our firm has been involved in recently:
- We acted for a client who was able to prove that no statutory demand or winding up application was served upon its registered office. The company was in fact wound up without it even being aware of the ATO’s application. Despite being able to provide evidence to prove this the ATO still contested our client’s application to have the winding up orders set aside. Ultimately our client was successful but significant legal costs were incurred. To read this click here.
- The ATO is aggressively winding up companies and will refuse even short adjournments to allow companies time to pay the tax debts;
- The ATO is increasingly refusing to waive interest on tax debts and is also requiring payment of its legal costs in any court proceeds;
- In various Part 10 agreements or deed of company arrangement proposals the ATO is refusing to consider deals that are significantly better than what it could expect to receive if the company got wound up or the individual went bankrupt;
- Any payment arrangements are only being concluded on terms that are on significantly shorter payment terms that have been previously agreed to in our experience and generally require substantial upfront payments.
All of the actions listed above have occurred prior to the announcement of the ATO’s firmer action policy. To read this policy click here.
As part of that firmer action policy the ATO has stated it will be issuing further director penalty notices and proceedings to take legal action on those director penalty notices. This announcement was made in late April.
We therefore can expect that the ATO will take even more aggressive action against tax debt over and above what is set out in the examples in this article.
It is important to note that under the new director penalty notice regime if the tax debt is unreported and unpaid for more than 3 months after the due date directors will be automatically liable upon the director penalty notice being issued for both the PAYG tax debt and any unpaid superannuation contribution. The 21 days to appoint an administrator or liquidator or make arrangements to pay the debt will no longer apply if the debt is unreported.
What you need to do
There are several steps which should be carried out as a matter of urgency to ensure that any current tax liability does not result in your company being wound up or that the tax liability and superannuation liability is not transferred into a personal liability to you as a director. These steps are as follows:
- Make sure your registered office and address details for you as a director on the ASIC register are up to date. If the ATO sends a director penalty notice, statutory demand or winding up application to your registered office which is in fact an old address because you did not keep it updated there will be no defense at law for your failure and your company could be wound up and you as a director found personally liable for these debts as a result. Please note this has happened to two clients who contacted us after director penalty notices were issued against them where we discovered they had simply failed to update their address to ASIC. Under those circumstances there was nothing that could be done.
- Ensure your company tax returns are up to date including the BAS. If this is done, even though it may mean the ATO will chase you sooner, you will at least have 21 days to put the company into administration or liquidation upon receiving a director penalty notice. If the returns are not up to date then 3 months after that return should have been lodged you will automatically become liable for any PAYG tax and superannuation charges upon the ATO issuing a director penalty notice.
- Review your company’s and your own personal financial position. If there is a substantial tax debt owed by the company or yourself personally it is far better to try and see if it can be resolved or obtain legal advice about potential payment plans, administration, deed of company arrangement proposals or part X proposals prior to the ATO chasing you for any outstanding debts. This allows for a proper review of the business and your circumstances to consider your options without having the additional costs and stress of urgent court dates involving the ATO which significantly reduce the options available to you if the matter is delayed until such a time. In our experience such arrangements or restructures are always more effective and less costly prior to creditors chasing you. Failure to do this may result in personal liability being owed by you as well as set out above.
If you are having any issues with tax debts owing to the ATO please contact us as soon as possible as in our experience often by getting on the front foot and dealing with matter prior to being chased by the ATO can result in the matter being resolved with minimum stress and costs.
This article has been prepared to provide a general overview of this topic and is not intended to provide, nor does it constitute, legal advice. You should seek legal advice before acting on or using the content of this article. Should you require legal advice on matters raised in this article please contact Andrew Lambros - Director on 07 3001 2925.