04/01/2021 - 08:32

A tax storm is brewing

04/01/2021 - 08:32


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An ATO storm is brewing

Whilst Australian businesses currently enjoy the financial comfort blankets provided by both the Government’s COVID financial measures and an ATO approach to tax debts that is both forgiving and non-aggressive, it is inevitable that the financial tap will be turned off and the ATO’s debt teams will be again unshackled. Winter is coming.

With some irony, the term ‘unprecedented’ has been used in 2020 more than ever before. It is an apt description for the government’s financial support for businesses and the overtly friendly, understanding and collaborative ATO that currently polices our tax liabilities.

Bankruptcies in the September 2020 quarter were at their lowest level since records began in 1986. The liquidations figures for WA show 333 for the last three quarters. For the same period last year it was 585, a 40% reduction. The monthly Administrator appointments are running 30-50% lower than last year.

But that change in the ATO’s approach has inevitably come at a public cost. The agency has acknowledged it fell around $1.3 billion short of its collection target due to its response to the pandemic, including pausing much of its ‘firmer action’ work. The net effect has been a blow out of the ATO’s total debt book to more than $53 billion. Collectible debt (owed by individuals, businesses and super funds) has increased to a record $34.1 billion, up from $26.6 billion last year.

The Coming Zombie Apocalypse

Whilst large numbers, it of course makes sense for the Government to not provide financial support with one hand while removing tax from the back pocket with the other. But this current tax and stimulus nirvana cannot last forever. It was recently declared that Australia had ‘technically’ emerged from recession but accountants, insolvency practitioners and directors across the State are aware that a large and growing new class of corporate entity, ‘the zombie’, will at some stage be unleashed upon the living.

Fans of the Waking Dead and post-apocalyptic films know the sole purpose of a zombie is to kill the living. Whilst that will not be the core objective of the ‘zombie corporation’, there is little doubt they will cause many still alive to join their deceased ranks when they stop paying their debts owed to other small businesses when the financial support ends.

When the acute financial and commercial problems associated with the pandemic subside and commercial markets return to relative normality (or perhaps even a ‘new norm’), you can expect the Government to be keen to sit down with Chris Jordan, ATO Commissioner of

Taxation, to discuss how Australia’s ravaged financial position is to be repaired. Expect to see additional resources given to the ATO to allow it to refocus its efforts upon collecting existing (especially historic) tax liabilities. Perhaps large multinational businesses will continue to be a focus given the potentially large recoveries involved, though history suggests that the ATO’s prime target will continue to be small businesses and high wealth individuals which account for almost half of its $53 billion debt figure.

What will that increased activity look like? Based upon our 10+ years of experience in addressing tax debt action (on both sides of the tax fence) the weapon of choice for the modern ATO debt officer is the Director Penalty Notice. The potential ambit for a director’s personal liability continues to be extended by legislative changes with corporate PAYG, super and even now GST liabilities on the Director debt action menu. Add BAS returns filed more than 3 months out of time and the capacity through DPN enforcements to bring a Director’s personal assets to the corporate debt discussion is now very wide.

Its worth noting that the ATO is not above accepting security over the family home to support a payment arrangement agreed for the company – which can be a useful option in the right case, or a disastrous strategic choice where the company is actually doomed to failure. Good advice at such crossroads is vital.

For corporate debts, the ATO still favours the old fashioned statutory demand/liquidation double tap. The Covid legal measures have effectively put that means of execution on hold given the current 6 month satisfaction period in place for statutory demands, but again a return to the standard 3 week payment deadline cannot be too far away - especially given the initial reports from the insolvency sector which suggest that the safe harbour provisions (which pre-date the Pandemic) and the new ‘small business restructuring plan’ scheme will not necessarily be embraced by enough struggling corporates to avoid the large scale liquidations that many are predicting in 2021.

Perhaps we should take solace in the fact that the Government is unlikely to allow countless Australian businesses to go under in the first half of 2021. How much more money is in the kitty to finance further support is the magic question, but we can hope that Mr Friedberg and his colleagues are keen to avoid a Lemming-esque group charge over the cliff on their watch.

The best advice is to keep planning ahead. Always be looking 6-12 months down the line, not just the next wage and rent bills. Make use of your most trusted professional relationships. This is not the time to seek advice based upon a high Google search result.

Get personal recommendations and find advisors (be they accountants, lawyers, bankers or insolvency practitioners) that you feel confident will provide the best advice for your business - and often indirectly your own family and personal finances. Trust people, not brands and good SEO marketing. If you are concerned about your tax liabilities, or you are facing (or expect to face) ATO debt enforcement, we would love to see if we can assist – contact us here.

And remember, it’s truly a global pandemic and therefore you’re not alone. Keep talking, sharing and seeking help where you can. Sharing problems doesn’t genuinely halve them like the old phrase goes, but it does give a voice to something that we might need to acknowledge is causing us stress or upset. Sometimes that acknowledgement alone can be a major step in either addressing, or at least coping with, a pressure point.


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