How we pave a way through.
Since the COVID era, ATO (Australian Taxation Office) debt has been rising at an alarming rate. Currently, there is over $80bn in outstanding tax debt, and the ATO is ramping up its collection efforts. They are utilising tools such as:
Issuing Director Penalty Notices (DPNs)
Default reporting on taxpayer credit files
Taking enforcement action resulting in liquidation.
It’s crucial that any taxpayers with outstanding debt engage with the ATO to avoid these aggressive actions.
One area where the ATO is still willing to cooperate is in setting up payment plans. Certainly, the ATO’s parameters have changed over time, particularly in the past 6 - 9 months, with respect of what they’re willing to accept. However, they are still available to clients and are useful in the right circumstances.
At Worrells, we’ve successfully negotiated numerous payment plans for our clients, helping them avoid harsh collection tactics.
What we've learned
Here’s what we’ve learned from our recent dealings with the ATO:
Lodgements must be up to date
The ATO won’t discuss payment plans until all lodgements are current.Payment plan terms
The ATO generally prefers 12-month payment plans but will sometimes extend up to 24 months, and in rare cases, even 36 months.Upfront payments
ATO expects around a 20-50% upfront payment, though we’ve managed to negotiate lower amounts in some cases.Can’t compromise principal tax debt
Taxation is generally a statutory mechanism and as such the ATO does not generally have the legal ability to compromise or waive tax debt without ministerial consent or formal insolvency procedures (e.g. small business restructuring, voluntary administration, / Deed of Company Arrangement).Interest and penalties
Remission of interest and penalties is rarely granted in the current environment.Act early
The ATO typically takes 28 days to engage on payment plans, so we recommend starting payments during the negotiation phase to improve the chances of success.
Engagement with the ATO needs to happen early to prevent any debt recovery action. Ignoring the debt won’t make it go away, and the ATO’s collection efforts are now more aggressive than ever.
We have a proven track record of success in negotiating payment plans with the ATO.
Case study #1: Cleaning business
The client had some significant challenging times during the COVID era that is it was recovering from. It had already taken numerous steps to address the company’s precarious trading position to ensure future viability, which had provided a positive turnaround for the business. The ATO commenced enforcement action before the company returned fully back on its feet.
The ATO position looked like:
ATO debt of $866,869
The ATO issued a Statutory Demand requiring payment of $864,719.15 within 21 days
Company was not in a position to pay the outstanding debt within the 21 days as demanded.
The company was already engaged in negotiations with the ATO in good faith.
We were able to work with the client, and provide expert opinion, to offer the ATO:
Payment of the entire current BAS debt of $95,887.46 within 14 days.
Payment of $500,000.00 within 14 days.
Payment of the balance of $270,982.17 by way of 24 monthly instalments of $11,290.93 per month. Cash flow projections were provided in support of this proposal.
Commitment that all future lodgements would be made on time and all future tax liabilities are paid on time
In summary, we were able to put forward an extremely good payment plan with over 68% of the principal debt being paid within 14 days of acceptance by the ATO.
Case study #2: Hospitality businesses
These clients were part of a sizable hospitality business group, within which a number of entities had already successfully completed Small Business Restructures (SBRs). For varying reasons these two clients were not candidates for SBRs themselves. One was the head office operations entity, and the other was a services entity.
The ATO position for these entities looked like:
Entity #1 ATO Debt of $964,251.10
Entity #2 ATO debt of $1,156,827.16
Initial negotiations for payment plans over extended periods had been flatly declined.
We were able to work with the client and provide expert opinion to offer the ATO:
Entity #1
Payment of the entire Income Tax Account debt of $29,911.76 within 7 days.
Payment of $70,000.00 within 7 days.
Payment of the balance of debt by way of 24 monthly instalments of $41,926.04 per month. Cash flow projections were provided in support of this proposal.
Entity #2
Payment of $241,738.00 within 7 days.
Payment of the balance of debt by way of 24 monthly instalments. Cash flow projections were provided in support of this proposal
Again, these are very good payment plan outcomes for both the clients and satisfy the ATO.
Worrells is ready to help your clients navigate this process. If you or your clients need assistance, feel free to reach out to your local Worrells Principal for confidential and complimentary consultation.
