Navigating the ATO Crackdown on Taxpayer Debts

Current Conditions

It is common knowledge that many businesses are currently struggling with harsh trading conditions. The cost of inputs, interest rates and employing staff are all increasing, while many consumers continue to hold back on spending.

As a result of these conditions, some business owners have fallen behind in their obligations to creditors – including the ATO. In this case, it is commonplace to negotiate with the ATO and set up a payment plan for any overdue balance. While not preferable given the ATO current general interest rate of 11.36%, a payment plan can be a valuable option for businesses with short-term cashflow constraints.

The ATO is closely monitoring taxpayers who do not enter payment arrangements, instead preferring to ignore their debts and/or refusing to lodge the necessary activity statements and tax returns. These taxpayers are receiving consistent reminders via text, MyGov, email and letters to get their lodgements and payments up to date. If these notices are ignored, further action can be taken by the ATO.

Where cashflow is an issue for businesses, it is important to determine whether a business is viable to continue.

Small Business Liquidations

Business owners and directors need to be aware of their obligation with the Corporations Act that the company is solvent and there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. If a company is not able to trade viably, the directors need to seek guidance from their advisers as “keeping your head in the sand” is not sufficient reasoning to trade while insolvent.

ASIC released data in April 2024 evidencing that in the nine months ended March 2024, there had been a marked increase in the number of companies entering external administration. In comparison to the same nine-month period in the year prior, companies entering external administration had increased 36.2%.

Director Penalty Notice

A Director Penalty Notice (DPN) is a formal notice issued by the ATO to company directors when their company has not paid certain liabilities on time nor gone into voluntary administration, restructuring or liquidation. It is the final step taken by the ATO when earlier action taken by the ATO is ignored. For a full explanation of DPNs, please read Emily Curnow’s article here.

In short, there are two types of DPNs:

1. Non-lockdown DPN

A non-lockdown DPN can be issued to a company director where a company has lodged the BAS, IAS or SGC statements but the debt relating to the lodgement remains unpaid. A non-lockdown DPN gives the company director 21 days to:

• Pay the debt in full,
• Appoint an administrator,
• Appoint a small business restructuring practitioner, or
• Begin to wind up the company.
  
  

2. Lockdown DPN

A lockdown DPN can be issued to a company director where a company has failed to lodged its BAS, IAS or SGC statements within three months of the due date. The DPN requires payment to be remitted in full no matter if the company can continue to trade or not.

Obviously, a director being found personally liable for a company’s debts is a very serious matter and it is why the business owners and directors need to be constantly assessing their business’ ability to succeed in an evolving environment.

Are you looking to ensure your business has every opportunity to succeed in the future? Take this opportunity to talk with us. Our team at BLG Business Advisers service businesses all over Australia.

Whatever you decide we wish you and your business every success!

*Please note that the above information is general advice only. We recommend you seek advice from a specialist relevant to your personal situation. This information is correct at the time of publishing and is subject to change.*