If you or your company owe the ATO a tax debt and can’t pay, you can seek to enter into a payment arrangement with the ATO. If the ATO refuses a proposed payment arrangement, you may also offer security over your assets or assets of a third party. At times, the ATO themselves may even request that you provide security as part of a payment arrangement.
We have previously provided and overview on payment arrangements and how one can provide security as part of a payment arrangement here.
We have also previously written on how we helped clients negotiate payment arrangements. Some examples:
How does the ATO take security?
Either the ATO asks you to provide security or you may offer to provide security. The most common form of security are mortgages, including:
- over the property of a taxpayer; or
- a mortgage over a third party’s property such as a director’s or shareholder’s property. In these circumstances, the ATO will requires that the third party provides a personal guarantee for the debt owed by the company.
What are the risks?
If you don’t pay the ATO, the ATO can take action to sell any asset they have security over. This includes taking possession and selling the asset, whether themselves or by appointing a third party.
For directors who have provided a guarantee as well, there are additional risks. Directors are generally not personally liable for debts of the company. A personal guarantee however makes a director liable for debts which the company can’t pay. And if a mortgage was provided to the ATO as security, the ATO can sell the property to recover their debt.
Case example
We were recently approached by a client who operates a cleaning business. About two years prior to contacting us, the client had guaranteed an ATO debt of approximately $500,000 and had provided security over several properties he owned.
While the company was already insolvent when he provided the guarantee, he was hopeful that he would be able to save his business. Unfortunately for him, he was not able to save the business and the company’s tax debt increased to more than $600,000. Apart from the tax debt, the business owed some money to debtors and short-term lenders. There was no other option for him to save the business.
As our client provided security to the ATO and guaranteed the tax debt, his properties had no equity. Without the security, he could have used the equity to repay debts that he guaranteed. With no other option available to him, we advised that he liquidate the company and voluntarily file for bankruptcy.
That was advice that we usually give as a last resort. Where possible, we like to help clients solve their problem to avoid liquidation and bankruptcy. On this occasion however, the ATO’s mortgage over his properties left him no choice.
What should have been done?
Anyone who has a tax debt that they can’t afford to pay should seek professional advice. A professional will be able to advise you on the options available and help you solve your issues before it is too late.
Contact us for Assistance
We have helped many clients negotiate payment arrangements with the ATO. We can provide you with options that are available to you depending on your personally circumstances. This includes whether providing security to the ATO is suitable for you.
If you need to negotiate a payment arrangement with the ATO or if you or your business are having difficulties paying tax debts, our professionals at TAX DEBT SOLVED can help. Contact us for a free, no-obligation consultation today.
