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30 Jun 2015

ATO flexes its muscles


3 min

Significant increase in winding-up applications filed in May and June 2015

While the Federal Government’s recent budget was promoted as being one for small business and designed to increase business confidence, it appears that behind the scenes the Australian Taxation Office (ATO) has embarked on a debt recovery blitz on delinquent taxpayers.

The Australian Securities and Investments Commission’s (ASIC) Insolvency Notices website shows the ATO filed over 425 applications to wind-up delinquent companies in June this year, 550 in May, which is up from less than 100 applications in April.

Some will say this is a good thing and will address those taxpayers that may be considered to be getting an unfair financial advantage over small businesses that comply with their taxation obligations. Others will say that it will drive some small businesses to the wall and result in job losses and other flow-on effects.

With the increase in ATO winding-up activity, we are also seeing an increase in other ATO recovery methods including the issuing of garnishee notices and director penalty notices.

Garnishee Notices
Where a person (a third party) owes money to, or holds money, for a tax debtor, the ATO can issue a garnishee notice to require the third party to pay that money directly to the ATO in substitution to the tax debtor.

These notices are typically issued to an entity’s bank requiring them to pay to the ATO monies held in an entity’s bank accounts. Click here for more information on garnishee notices.

Director Penalty Notices
Company directors have a legal responsibility to ensure that their company meets its tax obligations. A company director that fails to meet a pay as you go (PAYG) withholding or superannuation guarantee charge (SGC) liability in full by the due date automatically become personally liable for a penalty equal to the unpaid amount.

When a PAYG withholding or a SGC liability remains outstanding, the ATO can issue a director penalty notice (DPN), to enable them to start legal proceedings to recover the penalty. Click here for more information on director penalty notices.

Clearly the ATO is taking a tougher stance on debt recovery. So what things should advisors do?

DO ensure that clients know their reporting and payment obligations in respect of PAYG withholding tax and superannuation guarantee charge (SGC).

DO ensure that directors know they are personally liable for PAYG withholding tax and superannuation guarantee charge (SGC).

DO immediately forward creditors’ statutory demands and other notices received to clients (preferably by email with confirmation of receipt).

DO ensure directors’ residential addresses are up to date with the Australian Securities and Investments Commission (ASIC).

DO ensure that new directors are aware of the possible personal liability for company PAYG and SGC incurred prior to their appointment as a director.

DO refer clients with solvency concerns to insolvency experts for advice.

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