If you trade a business through a company and you have a tax debt, you have to be careful of ATO recovery action.
The ATO has various recovery tools available to it. These recovery tools pose significant risks to your company and to you as well. So what can the ATO do? And how will this impact you and your business?
Director Penalty Notices
The ATO can recover unpaid PAYG Tax and superannuation owed by a company from the company’s directors by issuing the directors with Director Penalty Notices. The ATO can issue two types of Director Penalty Notices:
- 21-day Director Penalty Notices, which apply if relevant lodgements are made within certain periods, being 3 months from the due date for BAS and one month from the due date for SGC Statements (to report superannuation to the ATO). The liability under these notices can be avoided by placing a company in liquidation or voluntary administration.
- Lockdown Director Penalty Notices, which apply if relevant lodgements are not made within the periods set out above. You cannot avoid liability under a lockdown Director Penalty Notice and the ATO can issue the notice after a company is in liquidation.
There is also legislation before parliament which proposes to extend Director Penalty Notice liability to GST debts. If this legislation is passed then Director Penalty Notices for GST debts will apply similarly to those for PAYG Tax debts.
The ATO can issue a Garnishee Notice to a third party which is liable to pay money to your company or which holds money on your company’s behalf. Garnishee Notices are commonly issued to:
- Banks, requiring the bank to pay all or a percentage of funds held in the company’s bank accounts to the ATO;
- Debtors who owe money to a company, requiring the debtors to pay debts owed to the ATO;
- For property development companies, parties who have entered into contracts to purchase real property; and
- A company’s solicitors who may hold funds on trust on behalf of a company.
If you don’t pay the ATO then the ATO can make an application to Court to put your company in liquidation. The way the ATO will do this, is firstly issue your company with a Statutory Demand which gives your company 21 days from service to pay the debt owed. If the debt is not paid (or a payment arrangement not entered into) within this 21-day period then the ATO can file a winding up application in Court to place your company in liquidation.
The winding up application will lead to the liquidation of your company resulting in the closure of your business, the sale of assets and a liquidator carrying out investigations regarding the failure of the business and pursuing any viable legal claims.
Engaging Debt Collectors
The ATO can engage debt collectors to recover tax debts up to $250,000. Debt collectors engaged by the ATO will write to you and phone you to seek to recover outstanding tax debts. However, they cannot take recovery action on behalf of the ATO, the ATO will do this “in house”.
What Can You Do to Avoid ATO Recovery Action?
Before taking recovery action, the ATO will most likely try to get you to enter into a payment arrangement with them. This will likely either be by way of correspondence or a phone call to you or your accountant. You should try to engage with the ATO and negotiate a payment arrangement, because if one is not in place then the ATO may take recovery action against you or your company.
Contact us for Assistance
If you or your business are having difficulties paying your tax debts, the professionals at TAX DEBT SOLVED can help with a free, no-obligation consultation, contact us here.