According to Melbourne-based expert Tax Assure, the number of businesses in a tax debt crisis has risen since last year, and the ATO has altered its strategy to target directors directly.
The average tax debt had risen in just a year, according to Olga Koskie, founder of Tax Assure, and the ATO had become more active, using director penalty notifications (DPNs) as a last resort.
She mentioned that they were observing a significant number of DPNs being issued by the ATO, and if a company were non-compliant, they were witnessing a swift and forceful recovery approach against directors.
According to her, DPNs are frequently dispatched and issued even prior to statutory demands, and once a company falls into non-compliance, recovery action against the director is almost a standard procedure.
She claimed that although it was not required, the ATO had previously sent out warning letters.
She mentioned that earlier in the year, they observed several warning letters being sent to directors. However, currently, even if a company had a payment arrangement in compliance, defaulting on that arrangement—such as failing to fully pay upcoming or ongoing liabilities—would result in the company automatically being considered in default.
She observed that once the company defaults on the payment arrangement, even if the company continues to make voluntary payments, DPNs are being issued against directors.
According to Ms. Koskie, Tax Assure, a company assisting with ATO payment plan negotiations, reported a threefold increase in the number of clients compared to a year ago, highlighting that there is a significant amount of stress being experienced in the business community.
Debts of at least six digits were not uncommon.
It was noted that individuals are dealing with substantial debts in relation to their turnover and profits, surpassing the levels seen before the onset of the COVID-19 pandemic.
They reported that, on average, company debt levels have doubled compared to the period before COVID.
She mentioned that for those who didn’t make payments during the pandemic, their debt levels have risen, and now the ATO is demanding full payment and immediate compliance from these companies.
She noted that businesses are facing significant pressure, essentially starting from a disadvantaged position and needing to catch up. They find themselves in a state of non-compliance from the beginning.
She emphasized the importance of companies focusing on PAYG, GST, and super liabilities, as well as staying current with lodgments, highlighting that clients are being adversely affected by deadlines that have been overlooked.
She explained that in some cases, either there had been a late lodgment or a failure to meet a timely payment for an ongoing liability, leading to the default of the arrangement. Despite their continued voluntary payments, these individuals were entirely taken aback by the receipt of a direct penalty notice, as they hadn’t even realized they were in default.
She mentioned that upon receiving a DPN, immediate action became necessary for the director, and the timeframes for negotiated plans were becoming more stringent, as the ATO was adopting a more stringent stance.
She noted that the timeframe for those payment arrangements was being made more restrictive. Furthermore, the ATO had once again shifted its attention towards examining compliance history.
She added that consistent defaults within a payment arrangement contributed to non-compliance. Additionally, if lodgments were submitted late, it was seen as contributing to non-compliance. Similarly, the failure to reduce the debt, resulting in its continual growth, was also viewed as a factor leading to non-compliance.
She mentioned that they’ve been receiving numerous inquiries regarding the continued viability of businesses, along with concerns about how they’ll manage to meet ongoing liabilities and address existing debt, while also seeking to implement measures to prevent further debt accumulation.
She further commented that when a company demonstrates itself as a viable business, performing well, and requiring an affordable payment arrangement with sufficient time for repayment, they are observing highly positive outcomes in such cases.
She pointed out that some companies are dealing with multiple debtors, not limited to the ATO, and she believed these are the companies currently facing the most significant challenges.
She emphasized that being in a compliant arrangement is the sole guarantee and the definitive approach to ensure they won’t face any additional legal recovery actions.
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