SGC and tax debts in ATO’s sights.
The Australian Taxation Office (ATO) has issued its latest annual report (click here). Here’s our summary of the key themes you need to know to best support and advise your clients about how the ATO has identified and recovered tax debt and its focus “looking forward”.
The ATO is not pulling any punches over super guarantee obligations—the compulsory employer contributions to employees' superannuation funds. In the 2022-2023 financial year, it wrapped up around 14,000 cases and sent out approximately 130,000 reminders to businesses. They also raised nearly $973 million in super guarantee charge (SGC) liabilities. That covered roughly 64,600 employers and benefitted about 710,000 employees.
The ATO states in its annual report that “we intentionally prioritised the recovery of super guarantee debts, high-risk debts and other high-value debt cases, and fraud-related debts such as those raised through Operation Protego”.
To simplify employer reporting obligations and address super guarantee non-compliance, the ATO has expanded its use of single touch payroll (STP) data by matching data from superannuation funds with the amounts reported by employers through STP for each employee-employer relationship.
Key takeaway: Clients must be aware that super guarantee debts will be quickly identified and can incur significant penalties (10% interest/annum pls $20/employee per quarter).
Growing collectable debt book
Turning our attention to collectable debts—those outstanding balances that continue to accrue. This number skyrocketed from $26.5 billion in 2019 to an eye-watering $50.2 billion as of June 2023. The major areas of concern? Activity statement debts, which include GST and PAYG withholding tax, and, you guessed it, unpaid superannuation debts.
The ATO has programs for clients with complex needs and is generally respectful and empathetic. But that shouldn’t be confused for any notion that taxpayers can avoid paying what is owed. The ATO isn't shy about taking firm actions, from garnishee notices to director penalty notices, against those who default repeatedly or avoid payments altogether.
The volume of firmer action reported in the latest ATO annual report are:
17,901—director penalty notices (DPNs)
867—disclosures of business tax debts to credit reporting agencies
2,934—garnishee notices and other legal recovery action.
It’s interesting to note that DPNs were reported by SmartCompany in August 2023 as being issued at a rate of 60 DPNs/day and were compared to 40 DPNs/day in May 2022.
Key takeaway: a director penalty notice (DPN) doesn’t make directors liable for outstanding company debts, directors are already liable by operation of law. The director penalty notice is formal notice and starts the clock to remit it or face the consequences.
In October 2022, the ATO initiated a significant outreach program, targeting businesses and directors with hefty outstanding tax obligations. Over 5,000 clients reached out to make things right, paying off more than $570 million, and entering into new payment plans worth nearly $492 million.
For anyone who didn't engage, the ATO ramped up its enforcement, affecting thousands of businesses and directors.
Key takeaway: Clients with outstanding tax obligations, don't wait for the ATO to come knocking; it's much better to be proactive.
Offsetting credits against older debts
Quick note to those who might have benefited from paused debt collections during the bushfires or COVID-19—this respite is over. The ATO resumed offsetting credits against 'non-pursued debts' in June 2022.
Key takeaway: Clients with any older debts, consider settling them before they find their credits or refunds are eaten up.
In summary, the ATO is showing no signs of slowing down when it comes to superannuation guarantee compliance and debt collection.
Source: Australian Government, Australian Taxation Office, Commissioner of Taxation annual report 2022-23 (Canberra, October 2023) pages 18 -19.