Unmanageable tax debts… what next?

By Domenic Kyriacou
1 March 2022

In late 2021 the Australian Taxation Office (ATO) broke its silence. The honeymoon period was over, as we saw their inaction in support of individuals and businesses get through the COVID-19 pandemic coming to an end.

The ATO had an additional $29 billion in tax debts to collect since the start of the pandemic, this not including the most recent impacts of the omicron variant. The ATO declared that it was increasing recovery actions for individuals and businesses in Victoria, NSW, and the ACT, meaning that they are no longer willing to allow businesses to trade with unpaid tax debts without any consequences. Businesses with unmanageable tax debts should heed this warning and seek urgent expert advice before it’s too late.

Who are the ATO targeting?

The ATO has informed Australians they have implemented a ‘tailored approach to their recovery actions’. This approach will see the ATO targeting individuals and businesses who had tax debts before COVID-19, have poor compliance history, and have unremitted goods and services and pay as you go (PAYG) withholding tax, or outstanding superannuation payments. It is expected by the end of 2022, that the ATO will broaden their target zone to include other taxpayers that are not complying with their obligations.

Small Business Restructuring 

The ATO has informed the insolvency industry it is eager to assist businesses to navigate the path post- COVID-19 by utilising the Small Business Restructuring process, which came into effect on 1 January 2021.

The Small Business Restructuring process was introduced to allow financially distressed, but commercially viable businesses, the opportunity to restructure their debts with the help of a Small Business Restructuring Practitioner (SBRP). This process allows creditors, including the ATO, to vote on a restructuring plan. 

As of 30 September 2021, the ATO has voted in favour of 92% of Small Business Restructuring proposed to them. Given the ATO debts that have accrued during the pandemic, it will likely have a big say in the proposals being put forward to creditors in the future. If you are a business owner with unmanageable debts, this is the prime opportunity to consider a restructure.

So how do I avoid these recovery actions?

The ATO advised that the key to avoiding recovery action is to:

  • Lodge tax documents including business activity statements, superannuation guarantee charge statements and income tax returns on time, even if you do not have the financial capacity to pay the tax liability.
  • If you or your business cannot pay on time, contact the ATO to seek assistance. The ATO can place you on a payment plan, provide additional time to lodge future tax obligations or provide remissions of interest and penalties.
  • Do not ignore correspondence you receive from the ATO in relation to your debts, including payment demand letters or director penalty notice. Instead, contact and seek support from the ATO.

With all signs indicating that lockdowns and border closures are a thing of the past, the best time to obtain support from the ATO in relation to your tax debts is now.

The team at PKF highly recommends that businesses with escalating tax debts, specifically goods and service tax, pay as you go withholding and superannuation guarantee charge, seek expert advice on the options available to manage its debts. Our dedicated business recovery and insolvency team can assist with utilising the Small Business Restructuring Solutions to negotiate a deal with your creditors, including the ATO.