Summary of the speech by Vivek Chaudhary (ATO Deputy Commissioner, Lodge and Pay) about Addressing collectable tax debt at the Tax Institute 2023 Tax Summit on 7 September 2023.
During the pandemic, the ATO focus was on stimulus payments and tax assistance, however, their current focus is back on addressing collectable tax debt. They want paying tax on time to be re-established as the norm.
The ATO acknowledges that most taxpayers do pay their tax on time and in full.
Providing extra time to pay tax in the pandemic years was a successful mechanism to help small businesses stay viable in tough financial times. However, now there is a culture of more businesses not paying their tax on time (including items like GST and Pay-As-You-Go Withholding).
The ATO expects businesses to make provision for the payment of tax and super like any other bill. Because of leniency during the pandemic, the ATO has seen businesses deprioritise these payments because interest and penalties were remitted to support business continuity.
This year the ATO has increased their activity to address collectable tax debt. Taking firmer actions and even increasing legal action in relation to large debts against operators who aren’t cooperating. Late payments or an unwillingness to engage with the ATO may result in interest and penalties. They warn that clients should not rely on remissions, as these will only be considered in limited circumstances.
They acknowledge that poor debt management, especially over long periods, seldom supports business viability in the long term. Ensuring they are also playing their part in protecting taxpayers from the burden of accumulating collectable tax debt.
The ATO encourages clients to contact them as soon as possible to discuss their debts and options that are available to them for redress.
Which five areas of collectable tax debt areas will the ATO focus on?
1. Unpaid super guarantee charge
The ATO highlights the importance that superannuation belongs to the employees of the business. Super is not designed to be used as a cashflow buffer but is there to support the employees in preparing for a financially secure retirement.
2. Debt arising from ATO audit adjustments
The ATO focuses on debts raised through audit activity. While the ATO acknowledges there are legitimate errors leading to some audit adjustments, there are also adjustments because of careless or sometimes deliberate avoidance of correct tax payments. These taxpayers will receive no concessions.
3. Refund fraud
There are the potential for serious consequences for taxpayers who participate in refund fraud. The ATO citing the case of a Mildura man who was recently sentenced to 7.5 years in prison in the County Court of Victoria.
4. Aged, high-value debts
Another area the ATO is also increasing their efforts with collectable tax debt, is to recover aged, high-value debts. They note that when clients are struggling to repay these debts, it is often a sign of insolvency, and these clients can expect legal recovery actions from the ATO.
5. Employers with new self-assessed debts
The ATO also wants businesses to become accustomed to paying tax in real time. Early disclosure of business tax debts is important. Thus they will focus on timely payment by taking immediate action for employers with new debts. This may include penalties, adding interest to debt and even progressing to firmer actions.
The ATO also warns that general interest charge remissions and payment plans, will be retained for clients who have a legitimate need of support. These levers are expected to become an exception, and no longer a rule.
Why is the ATO trying to shift payment behaviour?
Ultimately, the ATO is working for the benefit all Australians by helping to shift payment behaviour and create a positive payment culture.
They are appealing to all taxpayers who are struggling with their tax payments and need support, to contact the ATO or speak to their tax professional before they move into a tax debt situation. It is critically important to have these conversations before tax due dates.
The ATO wants to create a level playing field for all businesses who do pay on time and is increasing their use of firmer and stronger actions to address collectable tax debt.
Key actions that will be used to address tax debt:
• Director penalty notices and disclosure of business tax debt
• Insolvency
• Small Business Restructuring (SBR)
What can you do if you owe the ATO money?
The ATO acknowledges that everyone is busy and that addressing collectable tax debts will take time. However, speaking with the ATO as soon as possible helps them to understand your individual business situation. Finding practical solutions requires a collaborative approach.
Acting early, rather than waiting for the ATO to take action means that clients will be better positioned to manage their financial affairs and ideally, avoid actions that may have long-term implications for their business.
How will the ATO support you and your business?
From November 2023, the ATO will increase the self-serve payment plan threshold to $200,000 for those clients who are unable to pay their collectable tax debt in full. The aim is to save clients time because it reduces the need to contact the ATO directly.
The ATO also continues to work on making interactions with their clients more efficient. They understand that receiving a call from the ATO can be untimely and clients and tax professionals need to be able to prepare for these conversations.
Therefore, ATO is continuing to improve and streamline their lodgment and payment interactions with all parties.
In conclusion
The ATO is playing a critical role in protecting both the taxpayer and tax revenue by preventing the creation of too much debt and the number of creditors, as well as levelling the playing field to support the broader economy.
You can access the full speech at the ATO Media Centre
Addressing collectable tax debt – Tax Institute's Tax Summit 2023 | Australian Taxation Office (ato.gov.au)
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