Tax debt is the amount of tax incurred during previous financial years that you still owe to the Australian Tax Office (ATO). Debt to the tax office can become increasingly difficult to manage when the ATO enforces its penalties for late payment, thus creating even more debt for you. However, if you undertake the right measures and heed some advice you should be able to avoid these penalties and perhaps even some tax debt.

Failing to pay your tax debt on time can result in general interest charge (GIC) being automatically added to what you owe. GIC is calculated on a daily compounding basis, determined on your outstanding debt and is regularly added to your account. If you’re struggling to pay your tax debt off within the set period of time there are options available to help you. This can include making arrangements to pay by installments or even deferring your payments to a later date. Your personal circumstances, particularly the ones relevant to your tax debt, can also be taken into account.

In a landmark change to national debt collection policies, the ATO earlier this year 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 ATO has become stringent in recovering outstanding tax obligations, reducing its tolerance for those who fail to meet their tax obligations. By diligently applying and enforcing the law to collect monies owed to its organisation, harsher penalties and levies are enforced non-compliance, as with all companies in this tough financial economy.

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.

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 team of experienced Lawyers, Tax Agents and Accountants are able to assist you with the negotiation of your tax debt with the ATO. For more information submit an online enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to book an appointment.