Debts owed to the ATO saw a huge increase over the COVID-19 pandemic due to inactivity by the ATO in terms of recovery actions. Many expected that it would continue its upward trajectory in 2021 and 2022. The recent annual report released by the ATO confirms this. The total tax debts owed to the ATO now sit over $44 billion, an increase of $6 billion from 2021. Unsurprisingly, more than 80% of the debt consists of tax debts owed by small businesses and private business groups – at $37 billion.  The total tax debts owed by these types of businesses has been the main driver of increases in total tax debts owed.

Understandably, the ATO is seeking to recover and reduce the debt now that the pandemic is over. Earlier this year, the ATO sent approximately 50,000 letters to directors warning them of potentially being issued director penalty notices (DPN). This was shortly followed by the ATO issuing 2,800 DPNs to directors, making them personally liable for their companies’ tax debts, including superannuation guarantee charges.

There is no indication that the ATO will be slowing down in their recovery efforts. In fact, the ATO has stated that:

“As the economy recovers, one of our key priorities is to address the collectable debt that has accrued over the past 3 years. This has increased from $26.5 billion at 30 June 2019 to $44.8 billion at 30 June 2022 – up $18.3 billion or 69%.

While most payments are made on time, debts that remain unpaid and accumulate over time require firmer and stronger action.“

What should you do if your company has tax debts?

It is now just a matter of time before the ATO comes knocking on the doors of directors whose companies have considerable tax debts. There are substantial risks involved when it happens, not just to the company, but also the directors themselves.

But what can you do if your company has unmanageable tax debts?

The last thing should do is bury your head in the sand. Resigning as a director will not help.

You should seek professional advice urgently and discuss the options available. Some of the options that are available include:

• Taking advantage of the small business restructuring scheme. This scheme is a cost-effective way of dealing with your company’s tax debts, while allowing you to continue trading.
• Negotiating a payment arrangement, which will halt any recovery action being taken by the ATO.
• If your business is no longer viable, the last resort would be liquidation.

Acting now will provide you with more options than what will be available if you have been issued with a DPN.

How we can help

The team in TAX DEBT SOLVED have decades of experience in helping clients with tax debts. We understand implications of all the options available to you and your company, including any risks associated with those options.

If your company has tax debts that it cannot pay, contact us for a free consult. We will discuss your situation and provide you with options to start afresh.