The ATO is increasing its debt collection efforts, and small businesses need to act

“I am unapologetic about our shift to exercise firmer debt collection actions when appropriate.” 

That’s the message from Commissioner of Taxation Chris Jordan AO who signalled the ATO’s intent to step up its debt collection efforts, and small businesses should be on high alert. 

“Small businesses continue to be over-represented in our debt book, owing over $33 billion of the $50.2 billion of collectable debt,” Mr Jordan said in an address to the recent Tax Institute’s Tax Summit. “There are a growing number of profitable businesses who have the capacity to pay their bills but are choosing not to. Businesses appear to be de-prioritising payment of tax and super. This is concerning and is out of step with what we know, which is that the vast majority of taxpayers pay on time, and it’s unfair for them that some choose not to. This needs to stop.” 

The Four Priority Areas For Small Business 

Superannuation, BAS, Refund Fraud and Aged Debt are four areas that should sound alarm bells for small businesses, according to Steven Nicholson CEO of Retinue Accounting. 

“The ATO is concerned that businesses are accumulating unsustainable levels of debt and these four areas are going to be a major focus of their recovery efforts,” he said. “They’ve gone as far as to issue warnings that business owners could have their debts disclosed to credit reporting agencies if they have a tax debt of at least $100,000 that is overdue by more than 90 days.  

“The ATO has allowed a lot of latitude in recent years due to COVID, but clearly they are trying to shift the sector back to a pay-on-time culture. It’s really important that businesses don’t fall into the tax debt trap by engaging early and getting immediate support.” 

Super Guarantee 

“Right now small businesses owe $1.8b in unpaid superannuation guarantee charges,” Mr Nicholson said. “The ATO is particularly concerned by this as it directly affects employees. It’s the ATO’s view, and the view of the Australian public more broadly, that super belongs to employees and shouldn’t be a cashflow buffer.” 

Currently, it is compulsory to pay eligible employees their super guarantee at least 4 times a year equating to 11% of their ordinary time earnings. Small businesses falling behind on their super guarantee payments will be subject to the super guarantee charge, a penalty that is higher than the cost of the original super payment and is non-tax deductible.  

For more information about superannuation obligations download our free guide to Superannuation 

Business Activity Statements (BAS) 

Of the $33b currently owed by small businesses, unpaid BAS accounts for a whopping $23b. 

“BAS has become a real problem for small businesses,” Mr Nicholson said. “This includes PAYG withholding and GST that a business has collected and received credits for but hasn’t yet remitted. 

“It’s such a fundamental part of running a business yet it seems operators are struggling. For those who are falling behind in their BAS payments my advice would be to tackle the problem now. Lodgement dates come around so quickly and turning a blind eye won’t pay down your debt. Act now and stop the problem before it becomes a disaster.” 

Related: Find out more about your BAS obligations here. 

Refund Fraud 

The ATO has a zero-tolerance policy to refund fraud and its recent prosecution of a Mildura man should be a cautionary tale to small business owners. Vivek Chaudhary, Deputy Commissioner of Taxation has described refund fraud as “blatant theft” from the community and perpetrators can expect “serious consequences”.  

“The message here is simple: Refund fraud is illegal and you will be caught,” Mr Nicholson said. “It’s just not worth it and any reputable tax agent would never recommend any type of fraudulent activity.” 

Aged Debt 

The ATO has also declared that it will be doubling its efforts to collect high-value aged debt. The 2023-24 Federal Budget outlined a four-year program to focus on public, multinational and privately owned groups with debts over $100,000 or debts that have been overdue for more than 2 years. 

“For these clients, concessions are no longer available, and their debts will progress straight to firmer actions,” Mr Chaudhary warned. “Payment plans will be limited, and those that are accepted will need to be completed within shorter periods and align with reporting cycles.” 

Over the next four years the ATO is expecting to action almost 40,000 accounts with overdue tax and super debts, collecting approximately $640m through this program alone. 

“If you fall into this category, the ATO now has the resources to pursue you and they will come knocking,” Mr Nicholson cautioned. “If you’re unable to get back on track the ATO has also indicated that they will explore legal options. Act now before it’s too late.” 

Clearly, small business owners with large amounts of collectable debt are facing a perfect storm and Retinue is urging operators to take action. 

“The ATO has made its priorities very clear and has been quite vocal in its intent to recover collectable debt,” Mr Nicholson said. “If you’re facing significant tax debt, don’t put your head in the sand. There are options available such as restructuring debt. Give our team a call to explore how we can support you.” 

Retinue Accounting provides small business with access to bookkeeping and accounting support for a flat monthly fee. Get a quote to find out how we can support your business. 

*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.

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