The ATO is different to other creditors. The ATO has the right to demand tax debt and take money from you without proving its debt in court. It also has the power to demand and take security deposits for future debts even before they exist. They can turn a company tax debt into the director’s personal liability and take the director’s house. The tax office is a very powerful creditor that demands careful handling and negotiation.
During the 2009/2010 financial year, the amount overdue to the ATO totalled approximately $12.15 billion, which is approximatley 10% more than was owing during the previous year. Of this, it is estimated that 60% relates to SMEs. Do not feel alone if ATO tax debt is your problem. Obviously, you would like to honour your obligation, but not if it means destroying your business and even affecting your family’s well-being by doing so. It is ludicrous that frequently the ATO will apply to ‘wind up’ (or liquidate) a company, even it it means recovering less tax in the long run. Impractical for you, your family, the business and the national interest. There are more sensible options, which we discuss further below.
The ATO will, on occasion, allow directors to negotiate a payment arrangement allowing the ATO debt to be repaid in smaller amounts without interest or penalties over time.
However… you must take this into account…
- 50% of payment arrangements entered into with the ATO end in default;
- Under new legislation, directors can be made liable AT ANY TIME for unpaid tax if their company defaults; and
- It takes a lot of effort to put to an arrangement into place, and once an arrangement has been negotiated, it MUST be adhered to.
Further options …
Sometimes it is better to restructure your business. Would you like the opportunity to start afresh with no outstanding creditors, no unwanted staff, but with all the knowledge and contacts, customers and supporters, that are the core of your business? Rather than fight on and work hard to pay the ATO, perhaps you, your family and employees deserve a fresh start. You can retain key assets and income streams – as long as everything is done legally and for fair commercial value.
If this is the case for you, as it should have been for at least 50% of people who defaulted on their payment arrangements and ended up being personally liable for the unpaid portion, contact us and we will help you make the right decisions. Do not attempt to defraud the ATO in any way because if your company cannot pay its tax debt and the ATO do wind it up, you will be subjected to intense scrutiny. We assist you in identifying your positions of strength and to limit any personal exposure. We can assist with ATO negotiations or we can undertake a company restructure. The important fact is to understand that you do have options. You should contact Rebuild Now now while you are thinking about really addressing your problems.
Back to negotiation …
Compliance with previous assessments or payment arrangements and your company’s history are of the key consideration to the ATO. While the ATO acknowledge that negotiation for payment arrangements are made on a case by case basis, a poor track record on previous tax debt may be a stumbling block in negotiations.
The ATO is in some ways motivated like any other business analyst, just more powerful.
The upshot …
If you are going to negotiate with the ATO, what will you do that is different to ensure default does not occur? Is the payment arrangement you are entering into really sustainable? If not, do not enter into the arrangement, as it will only lead to further default and a very powerful creditor coming after you.
HOW IT HAPPENS – An example of what the ATO can do ……
The Australian Taxation Office has applied to wind-up Jim’s Plumbing – one of the several trade-based franchises run by entrepreneur Jim Penman under the well-known ‘Jim’s Group’ banner.
Penman was unaware the notice had even been filed.
Williams says Jim’s Plumbing will have 21 days to comply from the day the notice was issued. If it does not fully comply, the company could be wound up.
This demonstrates just how quickly, and quietly, the ATO exercises its powers.
And it is just got worse…
Increase in director liability for PAYG and super:
If you have not lodged your BAS return, or not made a scheduled payment of PAYG/SGC, or are on a payment plan agreed with the ATO, then be especially careful because you could become personally liable for your company’s tax debt WITHOUT EVEN KNOWING IT. Recently we have witnessed the ATO becoming more aggressive with collections of tax and super with instances of ‘one letter and straight to the debt collector’ becoming common practice.
Previously the ATO had to first issue a director 21 days’ notice to be able to enforce personal liability. Personal liability could then be avoided by putting the company into liquidation or voluntary administration. Now, if a company has “unreported” tax liabilities (e.g. the BAS hasn’t been done), then the directors could be automatically, and forever personally liable, for the tax debt even though no notice is given to them by the ATO, despite the company being placed into liquidation or voluntary administration.
What the new ATO power means for directors:
- Directors will be personally liable for the company’s tax debt in respect of returns that are not lodged within 3 months;
- The ATO will be able to source tax debts from director’s personal funds without notice;
- Directors may lose deductions claimed for PAYG their company owes the ATO;
- The powers of the ATO to administratively collect from the director personally will include garnishees on salaries and accessing of accounts holding the proceeds of property disposals. If taken to the extreme, the first a director may know about personal liability for company tax debts is when an EFTPOS transaction to pay for petrol is declined because there are insufficient funds left in the bank account.
The Bottom Line:
If there is any risk of your company not being able to pay debts as and when they fall due (e.g. withdrawal of bank support/tax reassessment/falling sales/a prospective damages claim etc) and either, you have unpaid company tax or have not lodged returns for three months, you should contact us. The risk of personal liability is likely to become high. Remember, the ATO is not like any other creditor. Their assessment of your debt is payable even if you dispute it. They can make you personally liable and the proposed legislation will make it easier for them to do so.
Our advice is that you TAKE EXPERT ADVICE FROM AN EXPERIENCED PRACTICAL NEGOTIATOR
ATO ruining small businesses, say advisers……..
The Australian Taxation Office reported that it was responsible for 2 per cent of bankruptcies and 7 per cent of all company wind-ups in the last financial year – and financial counsellors say many of these could have been avoided.
The advising firm said making people bankrupt made little sense for the ATO because they would get nothing back at all. But, he said, such cases were commonplace. “About 75 per cent of the time the ATO will come to some kind of arrangement and even knock money off the bill,” he said. “But in many other instances they just make people bankrupt.”
The ATO admitted it was taking a hard line on some firms.