As the business community shift focus towards the end of financial year, it is critical that owners take steps to manage their tax affairs particularly as the ATO appears to become more proactive in their management of tax debts. There is evidence to support this, with the ATO applying to wind-up 556 businesses in May, more than double the applications that the ATO lodged in July 2014.

Additionally, some of our partners have indicated a noticeable increase in the usage of Directors Penalty Notices and Garnishee Notices in recent times. These results follow a speech given by Tax Commissioner Chris Jordan earlier this year at the 30th National Convention for the Tax Institute which spoke of a general reinvention of the ATO, a part of which concerns debt management.

The Commissioner spoke of an approach of ‘early intervention’ in matters of tax arrears, in particular:

  1. Intervening earlier to prevent debts from escalating beyond people’s control. This approach was essentially outlined to be about ensuring repayment arrangements are adhered to.
  2. There will be a focus on business viability and ability to meet future obligations in the ATO’s assessment of cases.
  3. Legal action will be commenced earlier when warranted, meaning a wind up action where there is evidence of insolvency, and using other statutory powers where businesses have failed to pay employee superannuation entitlements or pay amounts in trust.

The commissioner commented that in the past the ATO had waited until debts had reach $340,000 on average before initiating action, compared to the overall average of creditors of $93,000. A key root cause of tax debts is often cash flow management, and Scottish Pacific urges owners and advisers to proactively seek solutions to manage cash flow to prevent tax debts and manage payment arrangements but also to assist business owners to restore their tax and trading position.