Why is the ATO cracking down?
The ATO has identified unpaid GST and PAYG withholding as significant risks to tax compliance in Australia. According to recent figures, the tax gap—representing the difference between the tax owed and the tax actually collected—remains a major concern. Small and medium-sized enterprises (SMEs) are often at the centre of this issue, whether due to financial difficulties, administrative errors, or deliberate non-compliance.
With the government focused on improving tax revenue post-pandemic, the ATO has intensified its efforts to recover outstanding amounts, using advanced data-matching technology and increased enforcement measures.
What actions is the ATO taking?
The ATO has implemented several measures to identify and act against businesses with unpaid GST and PAYG. These include:
- Increased debt collection activity
The ATO is actively chasing overdue tax liabilities by issuing Director Penalty Notices (DPNs), garnishee notices, and legal action against businesses failing to meet their obligations.
- Stronger use of Director Penalty Notices (DPNs)
Directors of companies can be personally liable for unpaid PAYG withholding, GST, and Superannuation Guarantee Charge (SGC). The ATO has been increasingly issuing DPNs to directors, holding them accountable for their company’s tax debts.
- Data-matching & advanced analytics
Using real-time data-matching and AI-driven analytics, the ATO is identifying discrepancies between reported income, GST claims, and PAYG withholding. This allows them to target businesses suspected of underreporting or failing to lodge their Business Activity Statements (BAS) on time.
- Stricter payment plan monitoring
While the ATO offers payment plans to help businesses catch up on unpaid tax, they are now closely monitoring adherence to these plans. Businesses failing to meet their agreed repayments may face immediate enforcement action.
- Public disclosure of tax debts
The ATO has begun listing businesses with outstanding tax debts exceeding $100,000 that are more than 90 days overdue on credit reporting agencies. This can severely impact a business’s ability to secure loans or trade credit.
Is your business at risk?
If your business is struggling with unpaid GST or PAYG, it is essential to take proactive steps before the ATO takes action. Here are some key risk indicators that could put your business on the ATO’s radar:
- Repeatedly lodging BAS late or failing to lodge altogether
- Ongoing unpaid tax liabilities with no communication with the ATO
- Large discrepancies between reported income and GST collected
- Operating with cash-only transactions and failing to report taxable income
- Ignoring ATO correspondence, including reminders and warning notices
What should you do if you have unpaid GST or PAYG?
If your business has outstanding tax liabilities, the worst thing you can do is ignore them. The ATO is more likely to work with businesses that engage early and show a willingness to comply. Here’s what you should do:
- Lodge outstanding BAS statements
Even if you can’t pay the full amount owed, lodging your BAS on time is critical. Non-lodgment is seen as a red flag and increases your risk of enforcement action.
- Contact the ATO to arrange a payment plan
The ATO offers flexible payment arrangements for businesses struggling with cash flow. By proactively setting up a payment plan, you may avoid harsher penalties and legal action.
- Seek professional help
Engaging an accountant, tax advisor, or insolvency specialist can help you navigate tax debt issues, negotiate with the ATO, and explore possible solutions like voluntary administration or restructuring.
- Review business finances & improve cash flow management
Many businesses accumulate tax debt due to poor cash flow management. Implementing better financial planning, cutting unnecessary expenses, and ensuring GST collected is set aside for payment can prevent future issues.
- Consider a Small Business Restructure (SBR)
For businesses in severe financial distress, a Small Business Restructure (SBR) may be an option. This process allows businesses to reorganise debt while continuing to operate, providing an alternative to liquidation.
Take immediate action
The ATO’s crackdown on unpaid GST and PAYG is not slowing down, and businesses failing to meet their obligations face serious consequences. If your business is at risk, taking immediate action can make all the difference. Whether through a structured payment plan, professional advice, or a formal restructuring process, there are options available to help you stay compliant and protect your business from financial distress.
Don’t wait until it’s too late—if you need guidance on managing tax debt, reach out to a professional today.
AVA Advisory provides expert guidance and support to help small business owners and directors set their businesses up for success.
