The Australian Tax Office (ATO) is intensifying its efforts to address business tax debt as a result of what it calls concerning trends, particularly made worse by the Covid-19 pandemic.
During the pandemic, the ATO shifted its focus from debt collection to providing support and stimulus payments to businesses. This was necessary to assist businesses during difficult economic times. This might have led to complacency in paying taxes, believes the ATO. But, as the situation has stabilised, the tax office says a return to normal operations is needed to reinforce a positive payment culture.
The ATO has recorded a significant increase in tax debt over the last four years, from $26.5 billion in June 2019 to $50.2 billion by June 2023. Small businesses account for a large portion of this debt. It is made up of unpaid activity statements, unpaid superannuation payments and other overdue payments.
To combat this, the ATO is cracking down on collection efforts by taking firmer action, including legal action against businesses that do not pay their tax on time or engage with the ATO proactively.
The ATO will focus on these areas in particular:
- Unpaid superannuation
- Debt arising from ATO audits
- Refund fraud
- Aged high-value debt
- Debts of employers with new self-assessed liabilities
What to do if you are struggling to pay your taxes
The ATO says it is committed to collaborating with tax professionals and businesses. It is encouraging businesses to get in touch with their tax professional or the ATO to address any financial challenges.
In fact, speaking in early September 2023, ATO deputy commissioner Vivek Chaudhary said, “Those who pay late or do not pay or do not proactively engage with us will have interest and penalties apply to their debts.” He emphasised the need for businesses going through difficult times to notify the ATO in good time.
The ATO has several support options in place for businesses struggling to meet their tax obligations.
1. Payment plans: sole traders, businesses and registered tax or BAS agents can break down payments into smaller instalments spread over a fixed period. The shorter the fixed period, the lower your general interest charge will be.
2. Managing payments: The ATO recommends budgeting for tax by keeping an adequate amount aside. It also suggests making prepayments when you are able to reduce the burden at tax time.
3. Compromise of tax debt: This is an agreement between you and the ATO in which the ATO agrees to accept a lesser amount to satisfy an undisputed tax debt, and to not pursue the balance of the tax debt.
4. Deferring payments: You may apply to defer or amend your repayment or overseas levy.
What happens if your business doesn’t pay taxes
Missing deadlines for tax payments can result in a number of penalties:
1. A general interest charge will be added to your debt. Your debt will grow each day you don’t settle it.
2. The ATO is required by law to use any credits or refunds to which you become entitled to pay off your debt in what is called offsetting.
3. In serious cases where the business refuses to work with the ATO, repeatedly defaults on payment plans or deliberately avoided tax payments, the ATO can take stronger action, including:
- Issuing a garnishee notice
- Issuing director’s penalties
- Disclosing tax debt to credit reporting bureaus4. In some cases, the ATO will take legal action, including filing a creditor's petition to make you bankrupt, issuing court summons, issuing statutory demands or, finally, having the business declared insolvent and proceeding with officially winding up the company.