If your company hasn’t been paying its tax or superannuation debts, it may find itself in the firing line of the Australian Taxation Office (ATO). But what debts does the ATO commonly chase? And what does the ATO do to collect those debts?
The main types of debts that the ATO tends to chase up are GST, PAYG Tax and superannuation (which the ATO collects if not paid as superannuation guarantee charge). These debts are are generally paid by a business monthly or quarterly. The ATO is often the last creditor to get paid causing their debts to accumulate and prompting the ATO to take enforcement and recovery action.
If your company doesn’t pay these debts, the ATO may pursue them in any of the following ways:
Director Penalty Notice
The ATO can issue a Director Penalty Notice (DPN) for any unpaid amounts of PAYG Tax or compulsory superannuation contributions, the company owes. If directors have or may become personally liable for their company’s outstanding PAYG Tax and/or superannuation debts, each director will be notified via a DPN.
There are two types of DPNs that the ATO can issue to directors:
- One notice allows the directors 21 days to appoint a liquidator or administrator to the company to avoid personal liability.
This type of notice is issued if Business Activity Statements (BAS) or Superannuation Guarantee Charge Statements (SGC Statements) relating to the outstanding debts are lodged within within set timeframes. The timeframes are for BAS, three months of the BAS being due and for SGC Statements, one month of the SGC Statement being due.
- If the respective returns were lodged outside the timeframes set out above, the directors are automatically personally liable unless the debt is paid in full by the company. This is because the debts have become ‘lockdown amounts’ and the directors cannot escape personal liability, although the ATO can only recover the debts after issuing a DPN.
A Garnishee Notice is usually issued by the ATO to your company’s bank, but it can be issued to anyone who owes your company money.
If your bank receives a Garnishee Notice it is required to pay any credit balances in your company’s accounts to the ATO. This can be a continuing obligation until the notice is paid in full meaning future funds deposited into your bank will be paid to the ATO. Often you will not know that your bank has received this notice until funds have started to be paid to the ATO.
Similar principles apply for Garnishee Notices issued to other parties, such as a company’s debtors or for property development companies, parties who may have purchased properties from them. As a result of this funds owing to a company will be paid to the ATO under a Garnishee Notice.
Statutory Demand / Winding-up Proceedings
A Statutory Demand issued by the ATO gives you 21 days to pay your debt in full or alternatively you may apply to court to set it aside on various grounds. After this 21 day period the ATO is able to commence proceedings in court to consider appointing a liquidator to your company.
The Statutory Demand and court application will be served on your company’s registered office.
If the ATO, or any other creditor files a Winding-up application at court, a company cannot appoint its own liquidator, however it can still appoint a voluntary administrator. Wind-up action can lead to liquidation resulting in the closure of your business, the sale of its assets and a liquidator investigating the directors’ conduct and pursuing legal claims.
What is the best way to deal with the ATO?
Being proactive in communicating with the ATO is the best way to deal with them. Payment arrangements can be entered into, but these need to be affordable. Alternatively, a more comprehensive turnaround and restructuring engagement may be more appropriate, if you’re uncertain about your company’s financial future.
Professional advice about your company can prove essential and for more information about how to deal with ATO debts and other creditors, the professionals at TAX DEBT SOLVED can help with a free, no-obligation consultation, contact us here.