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Don't let YOUR tax RETURN land you in hot waterPutting off doing your tax? Here's why you need to get it done

With ever increasing debts owed by SMEs to the ATO, don’t be surprised to receive a call from the ATO after hours or even on a weekend if your tax debts are in arrears.

In fairness to the ATO, they must strive to maintain integrity in our tax system as debts to the ATO continue to mount in these difficult economic times.

Whilst there has been some recent press about the ATO increased recovery actions, it is our experience the ATO are generally willing to work with SMEs in managing their debt obligations providing they make a genuine effort to do so. If you are flagrant and persistently fail to meet agreed expectations of you, the ATO are less likely to be sympathetic.

If there is an aberration in your business affairs and you have fallen behind in your tax debts, you should undertake an analysis of your financial affairs with your accountant. If you are trading solvently, then you should work with your accountant to formulate an achievable payment plan that your accountant can negotiate with the ATO on your behalf. Your accountant, through their past experience in dealing with the ATO and understanding of your business, is likely to be able to guide you to achieve an acceptable arrangement for both you and the ATO. General interest charges will, however, continue to accrue whilst debts remain outstanding.

Payment Plans

In contemplating a payment plan with the ATO you will need to ensure that your future tax obligations e.g. future BAS or PAYG installments are satisfied. If you don’t satisfy your future obligations on time, the ATO will deem the payment plan as being in default, and you will consequently need to renegotiate afresh with the ATO, if they agree, having regard to the increased revised debt.

what happens if i don't pay?

Persistent breaches of an agreed payment plan may result in your debt being referred to the firmer action group within the ATO who may take actions such as:

  • Issuing a garnishee notice (i.e. issuing a notice to a third party who owes you money to pay that money to the ATO, including your bank. This course of action will likely have an immediate negative impact on your cash flow)
  • Initiate bankruptcy proceedings or wind up proceedings
  • Pursue company directors personally for unpaid superannuation guarantee charges and PAYG withholding obligations

Negotiations with the firmer action group may become more protracted as they are likely to require a full written submission of your financial affairs including:

  • How the debt arose
  • Why you haven’t been able to pay it
  • What you have done to avoid these circumstances in the future
  • Who you bank with and the balance of your account
  • Whether you have capacity to borrow
  • Your income and expenses
  • Whether you can sell assets
  • Details of your current debtors and creditors
  • Details of all your assets and liabilities

Whilst the ATO are initially willing to entrust you to meet any agreed payment plan you have reached with them, failure to do so may result in you having to provide larger upfront payments and full particulars of a bank account from which the ATO can subsequently periodically debit agreed remaining payments.

Unfortunately, each time your accountant calls the ATO they will be dealing with a new person who will not have had the opportunity to review your file in detail beforehand. It is therefore strongly recommended that any approach to the ATO to initiate a payment plan be undertaken by your accountant as early as possible, and in a considered manner, to avoid having to deal with multiple ATO Officers on the same matter at added cost to you.

Once the ATO debt is settled in full, you should consult with your accountant as to whether there is scope and merit to seek a remission of general interest charges incurred. ATO Practice Statements can assist in providing guidance on when the ATO will look favourably at a remission of general interest charges. If there are extenuating circumstances that caused the delay in payment, the ATO may look favourably at remitting the general interest charges, even if the general interest charges are significant. Remember, the Commissioner has the legislative power to remit general interest charges in certain circumstances.

In summary, don’t be dismissive of your ATO arrears. Work with your accountant as early as possible for an outcome which is mutually beneficial to you and the ATO.

We're here to help

There are DFK ANZ accountants and business advisors right across Australia with deep taxation experience and expertise for you to access. Call 1300 DFK ANZ to book your complimentary Strategic Business Review as an AFTA Member. 

Peter Popov - DFK Perth Peter Popov, Perth.

Peter has been a Director of DFK Gooding Partners in Perth since joining the firm in 2001. Prior to that Peter worked at KPMG, the last 7 years as a Partner in their Private Business Division. Peter has consulted to and worked with a diverse range of private businesses in his career, with a focus on property related businesses.

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