A blowout to $19.5 billion forces the ATO to get tough

The Australian Taxation Office (ATO) will take quicker action to recover debts including initiating bankruptcy proceedings and company winding up proceedings, according to the Financial Review. The Tax Commissioner pledges that this comes on the back of increasing debt owed to the ATO, which has spilled over the $19.5 billion mark.

ATO debt increased 10% as of June 2014, compared to the previous year. And it appears debt is growing faster than the ATO’s debt collection can keep up with, despite increased debt recovery activity by 4.8%.

Tax Commissioner, Chris Jordan, explained the debt level before recovery action is commenced will be reduced to gain quicker debt recovery. Historically, the ATO may have waited for a company’s ATO debt to reach sums of on average $340,000 before commencing wind up action and $300,000 for individuals. The new benchmark could be in the vicinity of $93,000 for company debt, making it 70 percent less than the status quo.

Chris Jordan says “we will be taking legal action earlier when warranted” and explained “this means initiating bankruptcy and wind-up action where there is evidence that a taxpayer is insolvent, and looking to use other statutory powers where business have failed to pay employee superannuation entitlements or pay amounts held in trust.” The Commissioner would undoubtedly be referring to using Director Penalty Notices to seek recovery of the debt in addition to, precursor, or alternative to bankruptcy or wind-up action.

Given the ATO is a significant driver of the current volume of insolvency appointments, it follows that the expected increase in debt recovery action by the ATO means taxpayers who fall behind will not have so long to resolve issues before the ATO makes the decision for them.

The increase in ATO debt across the board and its stance on faster recovery action means we expect to see personal and corporate insolvencies increase, as compared to recent times.

For the Financial Review article: http://www.afr.com/news/policy/tax/tax-offices-chris-jordan-pledges-tougher-line-as-debt-hits-20b-20150318-1m2771