The Australian Taxation Office (ATO) is currently owed a staggering amount, approximately $66 billion in outstanding tax debt. Nearly all this amount is undisputed, and it just hasn’t been paid.
As we all know, with the Federal Government facing years of budget deficits, such a large volume of tax debt certainly isn’t helping. What makes it more concerning is that the ATO estimates only about $45 billion of this debt will ever be recovered.
How ATO Debt Grew During COVID
The amount of outstanding ATO tax ballooned by more than $18 billion during the COVID-19 years. This was because of the ATO deliberately taking a softer approach to debt collection. However, that leniency has ended.
Since March 2022, the ATO has returned to actively recovering tax debt from slow-paying taxpayers. If your business has unpaid tax, it’s crucial to understand the risks and consequences.
Director Penalty Notices: A Serious Consequence of Unpaid ATO Debt
Among the ATO’s most serious debt recovery tools is the Director Penalty Notice (DPN). In 2022 alone, the ATO issued around 18,500 DPNs to company directors.
A DPN is a formal notice that advises company directors they may be personally liable for their company’s outstanding ATO tax. Issued under the Taxation Administration Act 1953, DPNs cover unpaid taxes across a range of obligations.
If you receive a DPN, you have 21 days from the date of the notice to act:
- Pay the ATO debt in full
- Enter into a payment arrangement with the ATO
- Appoint an administrator to the company
- Place the company into voluntary liquidation
Failing to act within 21 days results in personal liability for the debt. The ATO may then pursue personal recovery actions, including garnishing wages, seizing personal assets, or initiating legal proceedings.
How ATO Debt Can be a Risk for Your Business
In recent years, the ATO has expanded its debt recovery measures by disclosing details of outstanding ATO tax to credit reporting agencies. This means that a business’s failure to pay its ATO tax debt could affect its credit standing and ability to obtain finance.
In 2022, nearly 500 businesses were reported to credit agencies under this process. Significantly increasing their financial risks and limiting access to credit.
Don’t Ignore Outstanding ATO Tax
If your business has outstanding ATO tax, ignoring it is the worst thing you can do. Hoping the debt will vanish or remain unnoticed by the ATO is highly unrealistic. It will likely result in additional penalties, legal action, or personal liability.
Many business owners feel embarrassed or defensive about financial difficulties, but avoiding the issue often leads to more serious problems. It’s far better to speak with your accountant or seek advice from insolvency and business recovery professionals who specialise in dealing with tax debt and financial distress. These experts can help you explore solutions you may not have considered.
Need Help Managing Tax Debt? Speak with Our Geelong Tax Experts
If you are dealing with outstanding ATO tax or need guidance on how to handle ATO debt, we encourage you to seek expert advice before matters escalate. The experienced team at MacMillan Cowan & Co can provide tailored tax advisory services to help you assess your situation, understand your options, and develop a clear strategy to resolve your tax challenges.
Contact us to arrange an appointment and discuss how our tax advisory services can help you manage tax debt effectively.