Having an ATO tax debt can be stressful, especially if you can’t afford to pay it. If you have an ATO tax debt you are struggling to pay, you should enter a payment plan with the ATO. If you have an outstanding tax debt without a payment plan in place, you could be about to face some serious ramifications.
Your Company may be insolvent
A Company that cannot pay its debts when they fall due is considered insolvent. Debts that are due, or becoming due, can be renegotiated so they are due over time, such as entering into a payment arrangement. Failing a payment arrangement is a strong indicator that a Company may be insolvent. It is important to negotiate terms you can meet.
The ATO may commence enforcement actions
There are three common forms of legal enforcement that the ATO use. These are:
- Issuing a Director Penalty Notice (DPN);
- Issuing a Garnishee Notice; or
- Commencing Company Winding Up proceedings.
You may be made personally liable for your Company’s ATO debts
The ATO can issue a DPN for a Company’s outstanding PAYG Withholding (taxes withheld from employee wages) and Superannuation Guarantee Charge (SGC) debts. This makes the directors personally liable for these debts.
Many business owners will put off lodging their Business Activity Statements (BAS) or Income Activity Statements (IAS) until they have money available. This avoidance behaviour can put you in more financial trouble.
Your company must lodge its BAS, IAS and quarterly SGC returns within three months of their due dates. If it does, the directors will have 21 days to appoint a Liquidator or Administrator to avoid personal liability for a DPN. If it doesn’t, the directors will be automatically liable for these debts, even if their Company is liquidated or deregistered.
The ATO may draw payment from your bank account without notice
A Garnishee Notice can be issued to your bank sweeping all, or a portion, of the funds from the account. Your bank is required to do this and you will only be notified after any funds are withdrawn.
Legal proceedings may be commenced to liquidate your Company or Bankrupt you personally
A Statutory Demand may be issued to your Company, giving 21 days to pay your outstanding debt. If you do not make this payment, the ATO can file a Company Wind Up Application with the Court. A Liquidator will then be appointed to your Company.
Your credit report may record your tax debt (if proposed law changes are introduced)
Laws currently being considered propose allowing the ATO to notify credit reporting agencies of taxpayers who have debts exceeding $10,000 that are 90 days overdue. This could have a catastrophic impact on a Business.
Consider whether your business can manage its debts, improve cashflow and profitability.
There are options available to rescue your business if it is viable and there is enough time to do so.
- An informal Business Turnaround carried out by management and their professional advisors.
- By appointing an Administrator to take control of the business while it restructures.
- By selling part of the business.
Whatever your situation it is important to ensure you have a plan. Make sure you are actively dealing with your ATO debt to avoid legal action.
If you are struggling with your tax situation, Tax Debt Resolved can help. Call us on 1300 628 586 today.
For more information on tax debt solutions, check out our tax debt page.