In the contemporary economic environment, many people and businesses are now facing a range of financial challenges. Outstanding debt is often the main temporary issue, caused by unpredicted circumstances or a short-term business decline, which normally results in individuals or businesses falling behind in their tax obligations to the ATO.

Consequently, you or your business, are now more likely than ever to have increased interaction with the ATO over tax amounts that are in arrears or unsettled. This situation becomes more daunting and increasingly difficult to manage if the debt remains unpaid for some time, as it will increase due to general interest charges (GIC) and other penalties imposed.

The most common ways individuals or businesses accumulate debt with the ATO include:

•   Failing to pay their tax
•   Neglecting to lodge their tax returns
•   Failing to lodge correct activity statements on time
•   Poor management of employer obligations, such as PAYG withholding, superannuation guarantee and fringe benefits tax.

What’s new with the ATO’s debt collection policies?

In a landmark change to national debt collection policies, the ATO has recently imposed more stringent procedures in its operations, tightening its debt collection guidelines. The ATO’s new tough stance is in reply to the substantial amount of GST debt outstanding, with the ATO estimating that over $3 billion was due at November 2010.

The significant portion of this change has come in the form of an additional phase to the ATO’s debt collection operations, known as the “Firmer and legal recovery action” stage. The ATO will initiate this phase when it determines that a taxpayer fails to respond to the early intervention phase and has failed to make sufficient effort to engage with the tax office.  A “risk analysis of the tax payer’s tax history and behaviour”, is used to determine the ATO’s course of action, and comprises of a range of serious collection procedures. These actions may include:

•   garnishee notices which allows the ATO to recover the judgment debt from the debtor’s bank account or wages.
•   director penalty notices which allows the ATO to collect outstanding taxes by making directors personally liable for the unpaid tax of their company.
•   initiating bankruptcy or wind-up proceedings, beginning with the issuing of a summons/statutory demand

To assist in administering these policies, the ATO has also implemented an external collection agencies panel, which comprises of 4 private independent debt collections agencies. This means that the ATO has outsourced a significant part of its operations, to strengthen its debt collection capabilities.

What this means and what you should do next?

These significant changes are a clear indication of the ATO’s lack of tolerance for those who fail to meet their tax obligations as they fall due. It is important that you and you business are up to date with ATO Receivables Policies and ensure you proactively implement sufficient Tax Risk Management practices, to reduce the risk of any penalties or legal action.

If you have any outstanding debt with the ATO and are having trouble keeping up with your tax payment obligations, it is imperative that you seek immediate professional advice, to ensure you avoid the various high costs and serious penalties that may be enforced. Here at The Quinn Group our Accountants, Lawyers and Tax Agents can negotiate with the ATO on your behalf to make sure you are treated fairly and your specific individual circumstances are taken into account. For more information submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.