The Australian Taxation Office has recently announced in its 2023-2024 corporate plan that its main priorities will include addressing collectible debt.

This plan confirms that the ATO will be taking a stronger stance on outstanding amounts owed by exercising firmer debt collection actions when appropriate.

What does this mean for me and my business?

While the ATO largely held off on taking enforcement action during the Covid-19 pandemic, it has now shifted back into taking a more aggressive approach to recovering tax debts.

That means the ATO will be less tolerant of businesses ignoring the ATO’s requests for payment, and more likely to take steps to recover the debt.

What can the ATO do to recover the debt?

The ATO can recover tax debts using a range of different methods. In our experience, the most common methods are:

1. Director penalty notices;
2. Garnishee notices;
3. Reporting the debt to a credit reporting bureau;
4. Commencing court proceedings;
5. Commencing bankruptcy or winding up proceedings.

What is a director penalty notice?

A director penalty notice (or DPN) is a notice issued by the ATO to the director of a taxpayer company. A DPN can make a director personally liable for the following type of tax debts of the company:

1. Pay As You Go (PAYG) withholding;
2. Superannuation Guarantee Charge (SGC) liabilities; and
3. Goods and services tax (GST).

There are two types of DPNs. The first is the traditional DPN which gives directors 21 days to take one of the below steps to avoid personal liability for the tax debt:

1. pay the underlying tax debt;
2. place the company into administration;
3. place the company into liquidation; or
4. appoint a small business restructuring practitioner.

The second is called a lockdown DPN, which may be issued where the company has not lodged its BAS or SGC statements on time and has not paid the amounts due. The only way for a director of a company with a lockdown DPN is to cause the company to pay the underlying debt or pay the director penalty.

You can find out more about DPNs in our previous article published here.

The key takeaway is to ensure that the company is (at the very least) lodging its BAS or SGC statements on time to avoid the issuance of a lockdown DPN.

What is a garnishee notice?

The ATO can issue a garnishee notice to a person or business that holds money for you or may hold money for you in the future. This requires them to pay your money directly to the ATO to reduce your tax debt.

This notice could therefore be issued to:

1. Your bank;
2. Your trade debtors; or
3. Suppliers of merchant card facilities.

The ATO is pursing me or my company for a debt. What do I do?

If you or a company of which you are a director has outstanding tax liabilities, the key is to engage with the ATO early, and before any enforcement action is taken.

If the ATO has already commenced enforcement action, you should urgently seek legal advice as there are strict time limitations. Our team at Rose Litigation Lawyers are experienced in defending DPNs and can promptly provide advice in relation to actions brought against directors by the ATO.

If you have a question about a DPN, intend to defend a DPN you have received, or are worried about the potential consequences of non-compliance with company liabilities like PAYGW, GST and SGC, you can contact us for an obligation free consultation.

The content of this publication is intended to provide a summary and commentary only. It is not intended to be comprehensive nor does it constitute legal advice, and has been prepared based on applicable legislation and case authority at the date of publication. You should seek legal advice on specific circumstances before taking any action.