As the economy emerges from the COVID-19 pandemic, the Australian Taxation Office (ATO) has stepped up efforts to engage taxpayers about unpaid debts.

19 May 2022

This is a deliberate shift away from the ATO’s stand during the pandemic, as it looked to assist businesses and individuals experiencing financial challenges and hardships.

The ATO has stated, through Deputy Commissioner Vivek Chaudhary, that it prefers approach is always work with taxpayers to resolve issues through engagement rather than enforcement.

“We have a range of support and assistance we can provide, and we can tailor a solution to a taxpayer’s unique circumstances. What is critical is that taxpayers or their representatives talk to us and respond to our calls.”

“We understand that a lot of people – especially small businesses – have done it tough through COVID and may now have a tax debt. Our message is – don’t stick your head in the sand – even if you can’t pay the full amount owed straight away, please contact us or your registered tax professional to discuss and we will work with you to set up an appropriate payment arrangement. We cannot help taxpayers who do not engage with us.”

Firmer action will be taken against taxpayers who do not engage, in the form of garnishees, recovery of director penalties, disclosure of business tax debt, legal actions including summons, credit petition, wind-up and insolvency action.

“Our debt collection activities prioritise those taxpayers representing higher risks and refusing to engage. That is why our initial focus will be on taxpayers with higher debts before including taxpayers with all other debts. Taxpayers with Superannuation Guarantee debts may be prioritised irrespective of their debt value. This is because the Superannuation Guarantee is an entitlement that is owed to employees” Mr. Chaudhary said.

The ATO has also written to businesses under two key awareness programs, in addition to the enforcement actions. The disclosure of business tax debts and the use of Director penalty notices focus on tax payers who have not responded to calls and letters, and have significant tax obligations outstanding. At present, the ATO has sent almost 30,000 awareness letters for disclosure of business debts an over 50,000 awareness letters about the use of Director Penalty Notices.

As a result the ATO expects a number of insolvencies to increase as the economy normalises in the coming months.

Whilst all debts remain due and payable, the ATO does not generally undertake debt recovery action on small business debts during a formal dispute.