The ATO is cracking down on small business tax debt. Are you ready?

The Australian Tax Office (ATO) has signalled its intent to crack down on collectable tax debt, setting its sights on the $33b currently owed by small businesses.

Figures revealed at this month’s Tax Institute Tax Summit showed that collectable tax debt had increased by 89% in the past four years, with small businesses over-represented in the $45 billion of total collectable debt owed by the Australian business sector.

In addressing the summit, the ATO’s Deputy Commissioner of Taxation Vivek Chaudhary said that too many businesses had accumulated unsustainable levels of debt stemming from the COVID-19 pandemic when deferrals, remissions and payment plans were commonplace. However Mr Chaudhary said the ATO would now be working to “reset expectations” around tax payment, shifting from a “COVID payment culture into a normal payment culture”.

“We want to guard against our payment culture turning from consistently paying on time to paying late,” he said. “Businesses appear to be de-prioritising payment of tax and super when they should be provisioning for these bills like they would with any other business expenses.

“As a consequence of our more lenient approach during the pandemic, we have seen an increased expectation that interest and penalties will be remitted. For a vast majority of taxpayers that pay their taxes on time, it’s unfair for them that some are choosing not to.

“Our expectation is, and should continue to be, that all clients will pay on time and not wait for us to chase them or expect concessions from the ATO.”

Mr Chaudhary said the ATO was unapologetic for its role in creating a ‘level playing field’ for businesses in regards to paying tax. 

“This year we carefully and thoughtfully returned to business-as-usual when collecting overdue debts. We have started working to reset expectations, and many businesses are already feeling the impacts,” he said. “You will have seen more activity over the last 12 months, with an increase in firmer actions, and a willingness to escalate to legal actions, for large debts especially those who are choosing not to engage.

“Those who pay late or do not pay and do not proactively engage with us will have interest and penalties apply to their debts. We do not want clients to rely on remissions and will consider them only in very limited circumstances.”

“We are determined to shift payment behaviours for the good of the Australian community.”

The Game Just Changed

Retinue Co-Founder and CEO Steven Nicholson said the shift in focus from the ATO should be a warning alarm for small businesses.

“Clearly, we’re seeing a shift in focus from the ATO in regards to collectable debt. They’ve thrown away the carrot and have taken out the stick,” he said. “Small businesses need to be aware, particularly those who are accumulating significant levels of collectable debt. They need to take action, and they need to take action now.

“Unpaid activity statement debt accounts for $23b in total debt owed by small businesses. An additional $1.8 billion is unpaid superannuation guarantee charges. These will be particular focus areas for the ATO, along with aged high-value debts, debt arising from ATO audit adjustments and refund fraud.

Related: Download the Retinue Small Business Guide to Managing Superannuation

“For those in significant financial duress, small business restructuring may be an option, allowing commercially viable businesses to restructure their debts while continuing to trade. In 91% of cases, restructuring plans have been approved by the ATO. It’s certainly an area where Retinue can support its clients with the accurate and up to date financial information that is required by a small business restructuring practitioner.”

“Our key message to small businesses is not to put your head in the sand. If your business is carrying collectable debt, the ATO has you in its sights. We can help you take action and put a plan in place before the ATO comes knocking.”

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*Retinue’s payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.