ATO Cracks Down on Tax Compliance and Debt Recovery
In recent months, we’ve observed an increase in the Australian Taxation Office’s (ATO) compliance and debt collection activities. This trend is expected to persist, with a particular focus on addressing outstanding debts, improving small business tax performance, and reinforcing superannuation guarantee compliance.
A Hardline Approach to Compliance
Our experience has shown that the ATO is taking a notably strict approach, particularly regarding:
Payment Plan Negotiations: The ATO now requires more detailed financial information to ensure taxpayers can demonstrate their capacity to repay.
Interest and Penalty Remissions: The ATO is increasingly unwilling to remit penalties or interest for late lodgements, even when valid reasons for delays, such as documentation or extenuating circumstances, are provided.
Lodgement Extensions: Even in cases of serious illness or other significant events, the ATO has shown resistance to granting extensions for lodging returns.
Understanding the ATO’s Compliance Model
The ATO’s firm stance can be better understood through its compliance model, outlined in PS LA 2011/6. This model assesses taxpayer behavior, applying tailored compliance strategies based on factors like economic conditions, technology, data, and taxpayer psychology. The goal is to encourage a proactive approach to tax compliance, guiding taxpayers to meet their obligations “willingly” when possible, or enforcing compliance through legal channels when necessary.
The compliance model relies on two continuums: the taxpayer's attitude toward compliance and the ATO's strategy. When taxpayers are seen as uncooperative, the ATO applies the full extent of the law; however, when a taxpayer is willing to comply, the approach should theoretically be more collaborative. Unfortunately, we’ve often encountered ATO personnel who seem ill-prepared to provide such support.
Post-Pandemic ATO Activity
Since the pandemic, ATO compliance and debt recovery efforts have ramped up significantly. This heightened focus is expected to continue, with particular emphasis on addressing collectible debt, improving small business tax compliance, and ensuring superannuation guarantee payments are met.
One prominent trend has been the increased use of Director Penalty Notices (DPNs) and garnishee notices. For company directors, a DPN means personal responsibility for the company’s tax obligations, including PAYG withholding and superannuation guarantee payments. Failure to address these obligations may result in directors becoming personally liable, potentially requiring payment out of personal funds. Upon receiving a DPN, directors must act quickly by either:
Paying the debt in full,
Negotiating a payment plan, or
Initiating liquidation or a small business restructure.
The ATO has also begun disclosing business tax debts to credit reporting bureaus (CRBs), affecting the business’s credit profile. This can hinder financing efforts, as potential creditors may view outstanding tax debt as a risk factor.
Recommendations for Tax Compliance
Given the current economic climate, we understand that meeting tax obligations can be challenging. However, we strongly recommend lodging all returns on time, even if full payment isn’t possible. On-time lodgement demonstrates a willingness to comply and avoids late lodgement penalties, which can otherwise complicate debt negotiations.
If full payment isn’t an option, lodging on time can also make it easier to negotiate a payment plan. Be mindful that the ATO currently charges interest at a rate of 11.38% p.a. for the December 2024 quarter, so alternative financing options may be worth exploring.
Above all, don’t ignore tax compliance issues. The ATO is committed to ensuring taxpayers meet their obligations, and proactive communication can make a significant difference. If the situation feels overwhelming, resources like Beyond Blue, Black Dog Institute, and Headspace can provide support beyond financial advice.
If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.