Tax

ATO flags “stronger action” on small businesses with tax debts

Dominic Powell /

The Australian Tax Office has said it will take “timely” and “stronger action” against small businesses with outstanding debts in an effort to reduce the number of businesses trading while insolvent.

A spokesperson for the ATO told Fairfax the wider community has requested a “firmer treatment of tax debtors” and that the tax office is rethinking its approach.

“The community has told us they want firmer treatment of tax debtors who do not address their debt.”

“Businesses that ignore their obligations will receive timely, firmer action from the ATO. This will include legal action where there is evidence the business is insolvent.”

A spokesperson for the tax office told SmartCompany such “timely, stronger action” can include garnishee notices, director penalty notices and insolvency proceedings.

The spokesperson says this type of action is intended to “prevent those that don’t pay from gaining an unfair advantage over those that do”.

“Taking timely, stronger action also limits the broader harm being caused by unviable businesses that trade insolvent, causing financial distress for suppliers, customers and employees,” the spokesperson says.

The spokesperson says the ATO does not have specific debt thresholds at which it will initiate insolvency proceedings, but instead will consider a number of factors, including the asset position of the business; the size and nature of the debt owed; the future income of the business and risk to revenue; and the cost and likely return of undertaking insolvency proceedings.

“The ATO remains willing to work with businesses even after commencing stronger recovery action,” the spokesperson says.

The ATO’s collectible tax debt has risen to almost $16 billion owed by businesses, and national accounting firm RSM has previously warned about the rise of companies operating on the verge of collapse.

Peter Marsden, head of restructuring and recovery at RSM Australia, told SmartCompany in June that these “walking dead” companies are ones with large amounts of debt who manage to just break even.

“They break even or make a small profit. They’re only making ends meet because interest rates are low. As soon as there’s in increase in rates, or there’s any action by creditors to recover debts, they’ve got nothing.”

“Flexible and reasonable” approach best: Carnell

Small Business and Family Enterprise Ombudsman Kate Carnell told SmartCompany the ATO acting on insolvent trading earlier is potentially a good move, but says the approach should be “all about balance.”

“I think it’s a good thing for the ATO to encourage small businesses to take action early, but the ATO has to be careful,” Carnell says.

“If this is about helping small businesses to get in contact with the ATO regarding problems with debt, then it’s a good thing. On the other hand, they shouldn’t be too heavy handed for businesses who are doing it tough.”

Carnell thinks that the ATO should be “flexible and reasonable” when it comes to following up debts, saying, “everyone has to pay the tax they owe, big or small”.

Small businesses facing cashflow problems can easily find themselves in debt, and in these scenarios Carnell says SMEs should feel comfortable contacting the ATO for help.

“A restaurant facing a few bad weeks might get behind on cashflow, and find themselves unable to pay GST or super,” Carnell says.

“It is in these situations that small businesses need to feel comfortable contacting the ATO, because right now they don’t.”

“The ATO is trying their best, they’ve got a significant amount of outstanding tax, and that’s in no ones best interest.”

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Dominic Powell

Dominic Powell is a journalist at SmartCompany and a tech and music geek. When he’s not writing, you can find him reading or browsing record shops.

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  • TJR

    Small business owner here who has been completely ‘done over’ by the ATO.

    The issue is not always about repayment of a debt with the ATO but rather what the debt is for and if it is accurate in the first place. Last year I received an innacurate invoice from the ATO for over $290,000 when a phone call to the ATO revealed that I actually owed only $5,400 which I paid immediately and the ATO subsequently lost the payment. It did not stop the ATO from commencing wind up proceedings for $290,000! I thankfully chose to represent myself at the Supreme Court as engaging legal council for all the hours that it took to defend would have sent me broke and caused 16 people in a small town to loose their jobs. Only after a request for telephone transcripts could I prove that I was told that I owed $5,400, did the ATO admit their error and withdraw their case.
    If you think the ATO are wrong you may well be right. Question it and go hard because in my experience trying to get a case manager is almost impossible until after they start legal proceedings. The Inspector General of Taxation is a very useful option that I would encourage anyone to take if in a jam with the ATO.
    This is such a serious matter. I can honestly say that it was only the love of my children that kept me alive through this process and I am glad there were no cliffs close by that I could have hurled myself off.
    Due to a wind up application by the ATO being listed on my credit file I couldn’t even renew the lease on my photocopier. I had been in the middle of refinancing to a new bank who had offered me a much better deal than I was currently on, had paid for property valuations and was ready to sign mortgage documents when they did one last credit check and then withdrew their offer.
    What a horrific time in my life for an otherwise successful business, trading well but falling behind on tax lodgements due to the wrong choice of accountant.
    I am still arguing with the ATO about the amount owing and with every objection that I lodge the amount changes. What started as over $290,000 and then went to $5,400 (which they eventually found once I initiated a lost payment enquiry), is now some $74,000 but the argument is not yet finished.
    Don’t be scared of them, do your research and if you are right fight until you can not fight anymore.

  • Justin Tyme

    TJR, I can empathise. I had a major client, an international in JV with a local, reneg on payment of $12.8mill. They wanted to draw out payment. A deliberate ploy to save on interest for them but enough to make me wind up a 28 year old business.
    The weight of unfunded redundancy introduced by the Gillard Government, plus the demand for tax on monies not received but accrued, meant to keep going would have cost $1 mill+ in legal fees, $600k in redundancy + $300 in tax plus interest over the period until paid. That while not being paid for the period of a two to 3 year legal process could not be done.
    I allowed the company to be liquidated, the Government paid the redundancy, they received no tax, no GST and 300 people became unemployed. Yep, they are a really smart government department. The business was viable, had been for 28 years; the banks offered support if I had additional security, but that burden was a bridge to far. TJR, well done

  • BJG

    I was also a victim of a non responsive ATO. When trying to work through issues with one arm, the other was sending me threatening letters and commencing wind up proceedings.

    Years of being a banker for my clients and an unpaid tax collector got the ATO finally took its toll. In the end we just gave up … 12 years in business down the drain.

    The alternative could easily have been to look for a cliff to jump off. My sanity was saved with the help of family, a good doctor and sympathetic business people and advisors.

    The ATO probably recovered most, if not all of my tax debt, and probably paid it all to the liquidators. All very usefull and productive. There was no suggestion or option to work toward a more sensible outcome.

    I know that I am not the only one who has had this experience.