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RELATED ALERTS

Following its two-year, Covid-induced hiatus, the Australian Tax Office has resumed its debt collection activities at an alarmingly rapid pace. Now, financial advisors are warning of a surge in business insolvencies to come. With the aggressive collection tactics being employed, it’s imperative that businesses with a tax debt take action now if they want to survive.

The ATO gave notice of their return to operations in April by way of issuing over 50,000 Director Penalty Notices (DPN). Only four months on and insolvency figures have returned to their pre-pandemic level. Prior to Covid-19, the ten year average of businesses entering administration in Australia stood at 9,300 per year. During the ATO’s collecting suspension between 2020-2022, this figure plummeted to an average of only 5,250 businesses. Now the ATO has confirmed that 120 DPNs are being issued daily and that number only appears to be rising.

To put this in perspective, following the impact of the Global Financial Crisis (GFC), there was a delay of 12 to 18 months before there was a significant increase in business insolvencies. Comparatively, that equates to a 8-14 month difference; and that speed can only be attributed to the harsh and heavy collection tactics currently being used by the ATO:

Director Penalty Notices (DPN)

If a company does not meet its pay as you go (PAYG) withholding, goods and services tax (GST) or super guarantee charge (SGC) obligations, it may be issued with a DPN. There are two types of director penalty notices:

  1. 21 Day DPN
    These are issued when a business has failed to make payment on its relevant tax charges. It grants a maximum of 21 days for businesses to take action by way of either appointing an administrator or paying the debt. Failure to take action can result in directors being held personally liable for the debt.

  2. Lockdown DPN
    Lockdown DPNs are issued to businesses that have failed to meet both tax lodgement and payment obligations. The only available options are to pay the debt or provide an acceptable defense.

Statutory Demands

Statutory Demands are the first step the ATO will take to wind-up a company. The only available options to resolve statutory demands include contesting the demand, paying the outstanding debt or appointing an external administrator. Failure to take action will result in the ATO applying to the court to have your business dissolved.

Taking action before these notices are received is by far the best course of action to avoid being one of the many businesses predicted to be made insolvent in the coming months. At Tax Negotiators, our friendly team are experienced with both navigating and negotiating tax notices, bills, penalties and interest. To regain control of your business, contact us here today.

References

King, P. ‘ATO Debt Levels ‘Much Higher’ Than Pre-Pandemic’, AccountantsDaily, Online, 2022, https://www.accountantsdaily.com.au/business/17394-ato-debt-levels-much-higher-than-pre-pandemic (Accessed 18 August 2022)