29 September 2021

ATO now issuing warning notices for businesses with tax debt

| RSM Australia
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Business owners have 28 days to engage with the ATO to discuss a tax debt payment arrangement. Photo: RSM Australia.

Under laws introduced in 2019, the Australian Taxation Office (ATO) is now issuing warning notices to businesses with tax debts above $100,000 that are now 90 days or more overdue.

Business owners have 28 days to engage with the ATO to discuss a payment arrangement or face having the debt disclosed to credit agencies.

While it may seem like a harsh measure given current circumstances with COVID-19, the warning notices could be viewed as a preliminary step to what was previously a swifter move to enforcement action.

“It’s a timely reminder for struggling business owners who may have favoured staying quiet about overdue tax debt during the ATO’s past 18 months of reprieve,” says RSM in Canberra managing partner Frank Lo Pilato.

“For businesses that were already accruing tax debt before COVID-19, it is especially important to make important decisions now about whether the business can remain profitable moving forward or needs to undertake a formal or informal restructure.

“Planning ahead for business survival during COVID-19 has been a key factor for us in helping our clients remain in a strong strategic and financial position during these uncertain times.”

Frank Lo Pilato and Jonathon Colbran

RSM Australia managing partner Frank Lo Pilato (left) and RSM Australia partner Jonathon Colbran (right). Photo: Michelle Kroll.

If you receive a notice from the ATO, ideally business owners should start engaging with their financial adviser or accountant to discuss options. While disclosure to a credit reporting agency isn’t an application to wind up the company, it is hard to remove and can impact your ability to secure funds in the future to improve your cash flow and financial position.

In determining a fair payment arrangement, trust is a key factor for the ATO. If your history demonstrates a willingness to engage and meet prior lodgement dates and payment arrangements, you’re more likely to have a new payment arrangement accepted.

“If you’re unsure if you can sustain any type of payment arrangement, it’s vital to have an honest conversation with your accountant about whether the business is still solvent,” says RSM in Canberra restructuring and recovery senior manager Adam Cormack.

“Taking early steps to do this often increases your options, and may even protect you from claims of insolvent trading.”

RSM’s advice is to re-establish communication with the ATO and collaborate to find an acceptable way forward. By remaining non-compliant and ignoring their demands, you increase the risk of further enforcement which could culminate in an application to wind up your business.

“We have worked extensively with struggling businesses throughout COVID-19 to help them make practical and strategic decisions to navigate these tough times,” says Frank.

“Our advice is to speak to a trusted independent third-party advisor who can help you develop a reasonable proposal while putting forward a request for the remission of penalties and interest which could reduce your core debt owed to the ATO.”

For help managing outstanding tax debt and determining all available options for your business moving forward, contact the restructuring and recovery team at RSM.

This is a sponsored article, though all opinions are the author’s own. For more information on paid content, see our sponsored content policy.

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The ATO should expect to collect less tax this year because of falls in income and dividends. There will also be delays in submission of tax returns because accountants are working from home.

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