With tax returns rolling in a little lighter than in previous years, taxpayers are left scratching their heads about the ATO’s deep dive into their already shallow pockets. The aggressive approach to taxpayer’s refunds stems from the ATO’s intensified debt recovery strategy revealed in its Corporate Plan for 2023-24, intended to cover debt recovery actions up until 2026-27. In this article, Law Clerk Riley Hickey and Senior Associate Lachlan Boyle explore the Corporate Plan and what it means for you as a taxpayer.

The ATO’s Corporate Plan

On 27 July 2023, The Australian Taxation Office announced its Corporate Plan covering 2023-2024 to 2026-2027. Key areas that the Corporate Plan aimed to address included improving small business tax performance, multinational tax performance and superannuation guarantee integrity. Other areas that have moved to the top of the ATO hitlist include rental property deductions, work-related expenses and CGT, and it warns accountants that landlords, those working from home and investors will be subject to extra scrutiny.

Pay up or Pack up -Tax Disputes

The ATO crackdown coincides with the growing number of insolvencies and corporate collapses, which have drastically returned to pre-pandemic levels. Relatedly to the new regime, the Australian Taxation Office is charging forward with Federal Court actions to recover overdue small business tax, estimated in the vicinity of $30 billion. A spokesperson divulged that the ATO had commenced 476 wind-up proceedings in 2023 so far, marking an unprecedented volume compared to previous years.

While the ATO is open to engaging with taxpayers and offering assistance to manage overdue debts its focus has realigned with its previous target approach to put a dent in unprecedented growth in collectable debt, predominately during Covid-19. As a result, it appears that the ATO is becoming less inclined to entertain payment arrangements, especially where they propose terms of greater than two years, a spokesperson mentioned.

Taxpayers with high-value and aged debts should be hyper-vigilant during this time, as they face the brunt of the ATO’s scrutiny. The message the ATO intends to send is simple: pay up or pack up.

Unable to pay your debts?

If taxpayers fail to engage with the ATO to satisfy their outstanding debts, enforcement actions may be escalated accordingly. In that respect, the ATO has the discretion to:

1. Issue garnishee notices and director penalty notices (‘DPN’);
2. Report outstanding tax debts to a Credit Reporting Bureau if action to manage the debt is not taken within 28 days of receipt of a notice of intent; and
3. Otherwise commence legal action, including issuing summons for non-lodgements, and otherwise progressing personal and caproate insolvency action, including creditors petitions and winding-up proceedings.

DIRECTOR PENALTY NOTICES

Company directors have a legal responsibility to ensure that their company is abiding by the relevant legislation and its corporate governance obligations, to ensure Pay As You Go (‘PAYG’) withholding, Superannuation Guarantee Charge (‘SGC’) amounts or Goods and Services Tax (‘GST’) is paid.

For companies with outstanding tax debt obligations, the ATO may pursue the company’s director for the tax debt personally by issuing a DPN. A DPN informs directors of the specific tax obligations that the company has not met (i.e., concerning PAYG, SGC, or GST), and holds them personally liable for those debts.

There are two types of DPNs, namely:

1. A “Non-Lockdown DPN”, can be issued if a company has lodged its business activity statements (BAS), instalment activity statements and SGC statements within the statutory time limits but has not satisfied the debt owed as a result of those liabilities; and
2. A “Lockdown DPN” can be issued if a company has not lodged its BAS or SGC statements within the statutory time limits and has also failed to pay the tax debt owed.

Historically, directors could avoid personal liability for a “Non-Lockdown DPN” by entering the company into a payment plan with the ATO. Now, a “Non-Lockdown DPN is only remitted if, within 21 days of the date of the DPN (and not the date it is served on the director), a voluntary administrator or liquidator is appointed to the company.

Summary – Tax Disputes

In conclusion, the recent revelations and stringent actions of the ATO underscore the agency’s commitment to maintaining the integrity of the taxation system. The Corporate Plan 2023-2027 strongly emphasises monitoring specific areas, such as small business tax performance and multinational tax performance. The resurgence of insolvencies and the simultaneous ATO crackdown signify a transition from the leniency seen during the height of the pandemic. For taxpayers, this marks an era of heightened vigilance and underscores the importance of ensuring compliance with tax obligations. The ATO’s message is now unmistakably clear: adherence to tax obligations is paramount, and those who fall short should be prepared to face the consequences. It’s a call for taxpayers and corporations alike to realign their strategies, ensuring they are compliant and equipped to navigate this evolving landscape.

Ramsden Lawyers – Navigating Tax Disputes

If you are aware of outstanding taxation obligations, you must seek legal advice at the earliest opportunity.

Considering these developments, now more than ever, it’s crucial for individuals and businesses to stay abreast of their tax obligations and seek expert advice when needed. Don’t find yourself on the wrong side of the ATO’s evolving stance. If you or your business are unsure about your tax standings or need assistance navigating the new guidelines, reach out to a professional immediately. Proactive engagement and early action can mean the difference between smooth sailing and potential legal complications. Remember, the ATO’s stance is clear, and so should be your response. Act now, consult a tax specialist, and ensure your finances are in order.

The content of this article is intended to provide general guidance to the subject matter and must not be relied on as legal advice. Specific advice should be sought about your circumstances.