Understanding the ATO's approach
The ATO’s shift towards firmer debt collection measures comes after a period of relative leniency during the COVID-19 pandemic. Whilst “Government assistance programs” provided much-needed relief, many businesses accumulated significant debt burdens.
Now, as these programs wind down and the economy faces headwinds like inflation and rising interest rates, the ATO is returning to its ordinary debt recovery processes.
This means a greater emphasis on early engagement and proactive solutions. The ATO expects taxpayers to take responsibility for managing their tax obligations, even amidst challenging business conditions.
ATO’s $100,000 threshold and disclosure criteria
A key element of the ATO’s strategy is the use of “intent to disclose” notices. These notices serve as a final warning to businesses that meet specific criteria:
- • ABN holder: The business must have an active Australian Business Number (ABN).
- • Significant debt: Tax debts must have accumulated to $100,000 or more.
- • Overdue payments: These debts must be overdue for more than 90 days.
- • Lack of engagement: The business must not be effectively engaging with the ATO to manage the debt. This includes failing to establish a payment plan, not seeking support or assistance for disputing a liability and not having an active complaint with the Inspector-General of Taxation and Taxation Ombudsman.
Intent to disclose notice: a final warning
Businesses meeting these criteria will receive an Intent to Disclose letter from the ATO. This letter provides a 28-day window for the business to take action and avoid disclosure.
During this period, the business can engage with the ATO to:
- • Negotiate a payment plan: The ATO offers flexible payment arrangements tailored to individual circumstances.
- • Dispute a liability: Businesses can lodge an objection, review or appeal if they believe a tax debt is incorrect.
- • Seek support and assistance: The ATO provides various resources and guidance to help businesses manage their tax obligations.
Failure to take any action within the 28-day period will likely result in the disclosure of the tax debt to credit reporting bureaus.
Speaking to a specialist tax debt advisor, like AVA Advisory, is crucial during this time to give you the best chance for an outcome in your favour. The ATO is one of the most resourced Government departments in Australia and highly protective of its mandate to “foster participation in the tax system”.
A black mark on your credit report
Once a tax debt is disclosed, it appears as a black mark on the business’s credit report. This negative information can have a lasting impact on the business’s financial health, making it difficult to:
- • Secure debt finance: Lenders rely heavily on credit reports to assess the risk of lending to businesses. A disclosed tax debt can make it difficult or even impossible to obtain loans at favourable rates.
- • Maintain supplier relationships: Suppliers may be hesitant to extend credit or offer favourable terms to businesses with poor credit scores.
- • Attract investors: Investors often consider creditworthiness when evaluating potential investments. A disclosed tax debt can signal financial instability and deter investor interest.
Growing scale of the problem
Collectable debt has more than doubled over the last six years, increasing from $26.5 billion prior to COVID-19 to a staggering $51.4 billion as of March 2024, according to the ATO. Further, the ATO’s debt book for small businesses currently stands at a staggering $34.3 billion.
Much of this debt is attributed to unpaid Pay As You Go (PAYG) withholding and Goods and Services Tax (GST). This indicates a widespread issue of non-compliance, potentially driven by a combination of factors, including:
- • Economic hardship: Many businesses are struggling to stay afloat in the current economic climate, making it difficult to meet all their financial obligations.
- • Complacency: Some profitable businesses may be deprioritising tax and super payments, assuming the ATO will be lenient.
- • Lack of awareness: Business owners may not fully understand the implications of tax debt disclosure and the importance of engaging with the ATO early on.
Take action now: don't wait until it's too late
The ATO’s increased focus on debt collection and disclosure makes it more important than ever for small and medium business owners to be proactive in managing their tax obligations.
Here are three key steps to take:
- Stay informed: Keep up-to-date on the ATO’s latest debt collection policies and procedures.
- Engage early: If you’re experiencing financial difficulties, contact the ATO as soon as possible to discuss your options.
- Seek professional advice: An experienced insolvency practitioner, like those at AVA Advisory, can provide expert guidance on managing ATO debt, negotiating payment plans and exploring restructuring options.
AVA Advisory: your trusted advisor in navigating ATO debt
At AVA Advisory, we understand the unique challenges faced by small and medium businesses. Our team of experienced debt advisors and insolvency professionals can help you:
- • Understand your options: We’ll explain the ATO’s debt collection processes, your rights and obligations, as well as the potential consequences of non-compliance.
- • Negotiate with the ATO: We’ll work with the ATO on your behalf to establish workable payment arrangements and explore other solutions.
- • Develop a debt management strategy: We’ll create a customised plan to help you manage your tax debt effectively and avoid future issues.
Don’t let ATO debt threaten your business’s future.
Let us help you protect your business and its creditworthiness. Get in touch with AVA Advisory today by calling 1300 181 220 or book a confidential, no-obligation consultation through our online platform.
