Recent Taxation Development- ATO Shift

ATO shifting to firmer debt collection activity

The ATO has flagged a return to firmer debt collection actions after seeing a trend of profitable businesses that have the capacity to pay their tax debts but are actively choosing not to do so. It warns business taxpayers not to treat tax liabilities like a free loan, and reiterates that businesses are only temporary custodians of GST, PAYG withholding and super guarantee amounts. In addition to its ability to apply general interest charge (GIC) to unpaid debts, the ATO has stronger enforcement actions in its arsenal, including issuing garnishee notices and legal action.

With less than two months left in this tenure as the Commissioner of Taxation, in a recent speech Chris Jordan has unapologetically flagged the ATO's shift to firmer debt collection actions where appropriate. This coincides with the reactivation of debts that the ATO previously put on hold during the 2020 COVID-19 pandemic.

The Commissioner noted that most collectable debts with the ATO are self-assessed and include not only income tax debt, but also unremitted GST and unpaid PAYG withholding, as well as super guarantee charges related to businesses. In addition, he noted that small businesses continue to be over-represented in the ATO's debt book, owing over $33 billion of the $50.2 billion of collectable debt, with $23 billion of that being unpaid business activity statement debt.

In general, if taxpayers do not pay their tax by the due date or engage with the ATO by the due date to work out a payment plan, GIC will be applied to any unpaid amounts. GIC is automatically calculated on a daily compounding basis on the amount outstanding and added to taxpayers' accounts periodically.

The ATO is also legally required by law to use any credits or refunds taxpayers become entitled to, to pay off any debt that is owed (including any debts that are "on hold") by way of offsetting. This includes any refund that individuals may receive in relation to income tax, and any GST refunds that businesses may receive.

The ATO has previously referred debts to external debt collection agencies, although it no longer does so. However, it has not ruled out doing so for future debts.