Changes to commercial law could have tax repercussions for businesses owed money

Liquidity problems experienced as a result of debtors not paying can lead to a company’s inability to pay tax.  

The ATO have announced that their more lenient approach towards tax defaulters is now coming to an end. For taxpayers lacking funds to make a taxation commitment, action by the ATO could lead to business closure. 

Mason Sier Turnbull offers services to address liquidity problems through their Insolvency and Reconstruction team. If liquidity problems are a result of debtors not paying, Mason Sier Turnbull’s Litigation team can help recover these funds.

ATO Director of Complex and Strategic Recovery, Ross Burns outlined options the ATO may take to recover unpaid tax at a recent forum hosted by Taylor Woodings.  

The ATO’s preference to enter into payment arrangements would be honoured with most taxpayers still invited to offer a payment arrangement. However taxpayers with a poor record may face further action.

The ATO can demand a bond or security in anticipation of failure to meet taxation liability. Security deposits, in the form of cash or bond, mortgage on property or unconditional bank guarantee, would only be enforced in extreme cases. Approximately 27 demands for securities have been made thus far.

The ATO acknowledged through Mr Burns it is issuing a number of garnishee notices, to remit the sum owed to the taxpayer. These have been issued mainly to banks, employers of the taxpayer, merchant facilities and purchasers of assets. The ATO does not need a court judgement to issue garnishee notices.

The ATO is empowered to use a direct penalty notice (DPN) to the director of a company that is in arrears of its PAYG obligations. The director will become personally liable for the PAYG tax debt within 21 days unless it is paid or the company goes into voluntary administration or liquidation.

Changes to the law, in effect since 1st of January, mean that even if the company enters into a payment arrangement with the ATO, the director may still be liable under the terms of the direct penalty notice and personally liable for the PAYG tax debt.

If you have any further enquiries please contact Mason Sier Turnbull.