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The “softly softly” approach to small business debt collection during periods of natural disaster and pandemic (while appreciated at the time) is now at an end. With a 90-day column of massive proportions the ATO is now taking the necessary steps to rein in Small Business Tax Debt. Of recent times the ATO have adopted a number of methods to more aggressively bring down small business tax debt. The broad goal is direct engagement of small business and their advisors with a view to collecting the debt or putting it under a formal payment arrangement. There is no doubt there will be businesses that will not survive the current push by the ATO and insolvency practitioners will become busier as a consequence. Mediums such as phone and correspondence are being used to engage on small business debt. Two more aggressive tools are also being used to rein in debt.
The first collection tool is Director Penalty Notices (DPNs) which can extend liability to company director’s personal assets. DPNs can be applied to PAYG Withholding (PAYG) and Superannuation Guarantee Charge (SGC) and more recently GST debt of a company. If clients are in receipt of a DPN time is of the essence. Getting competent advice at that time is crucial to limit personal exposure. The volume of DPN’s being issued by the is increasing and insolvency practitioners are reporting seeing a lot more enquiry. The second is referral to Credit Agencies which was legislated in a 2019 Tax Integrity measure. Essentially if a small business has not actively engaged with their tax debt and it is greater than $100,000 then it could be reported to credit agencies where it will affect your credit rating. The consequences could be severe with lenders and suppliers and could make it difficult to do business. Use of both tools will have adverse consequences to the small business so there is a rigorous process the ATO follow before using them.
When asked if the ATO’s current approach is to severe Australian Bookkeepers Network director Peter Thorp said “the overall approach to debt by the ATO has been quite even handed to date. They have a job to do and that is to collect small business debt. The ATO have been quite flexible in the payment arrangements they are entering into when compared to years gone by”. Did he have an opinion on the use of DPN and Credit Agency referrals? “They are certainly high consequence actions with either measure potentially crippling a small business and they are aware of this fact. As a consequence, there is a rigorous process that they follow before initiating either. In most cases taxpayers on the wrong end of these actions have resisted attempts to engage with the ATO on their debt obligations. Did he have any advice for clients that are precariously balanced and have ATO debt? “Get in, engage with the ATO as there has never been a better time to negotiate a flexible payment plan and I fear that will not get easier over time”.
